: tt#"\ nriwi 



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LIBRARY OF CONGRESS, 

Shelf ...E.I.5. 






UNITED STATES OF AMERICA. 



WHOM TO TRUST. 



(3) 



AiGtic AlasKd and Siheria; 

OK, 

EIGHT MONTHS WITH THE ARCTIC WHALEMEN. 

By Herbert L. Aldrich, 

Who made the cruise with the fleet of 1887. With thirty-four half- 
tone process illustrations, from photographs taken by the author; and 
a correct map of the Arctic Whaling Grounds. 

"Appeals to a wide circle of readers, and will enchain the attention of 
the school-boy as well as the scholar. "— Chicago Tribune. 

12mo; 234 Pages, with Handsome Cover Design in Gold and Black. 

PRICE, $1.50. 



CRUISIHGS IN THE CASCADES 

A NARRATIVE OF 

TRAVEL, EXPLORATION, AMATEUR PHOTOGRAPHY, 
HUNTING, AND FISHING. 

By G. O. SHIELDS (" Coquina *'). 

Author of '"•Rustlings in the Rockies" "-Hunting in the Wild West,' 1 '' "The 
Battle of the Big Hole," etc. 

" It is by all odds the most fascinating book on big game hunting ever 
published. 11 — The Journalist. 

" The authors style of writing would make even a dull subject enjoy- 
able. * * * There are enchanting sketches of scenery, pleasing stones 
of mountain climbing, of hunting and fishing; excellent estimates and delin- 
eations of Indian character, drawn from personal contact ; a fine description 
of salmon and their habits, and such accounts of bear, elk, deer, and goat 
hunting as to make the blood of the hunter tingle in every vein. 11 — Public 
Opinion. 

12mo; 3( 
back stamp. 



pages, profusely illustrated; with handsome gold side and 
Prices: Cloth, $2.00; Half Morocco, $3.00. 



Sent postpaid, to any address, on receipt of price, by 

RAND, McNALLY & CO., Publishers, 

148 to 154 Monroe St., CHICAGO. 
323 Broadway, NEW YORK. 



WHOM TO TRUST: 



A PRACTICAL TREATISE 



ON 



MERCANTILE CREDITS 



By PVR. EARLING, 

of L. Gould & Co., 

CHICAGO. 




chicago and new york: 

Rand, McNally & Company, Publishers. 

1890. 



fc b 






Copyright, 1889, by Rand, McNally & Co. 



THIS TREATISE IS DEDICATED 
BY THE AUTHOR, 
TO HIS FRIENDS AND ASSOCIATES IN BUSINESS, 
L. GOULD AND FRANK GOULD, 
AS EMBODYINO THE PRINCIPLES AND METHODS ADOPTED 
AND UNLFORMLY ADHERED TO BY THEM, THROUGH- 
OUT A LONG AND SUCCESSFUL BUSINESS CAREER. 



(?) 



CONTENTS. 



INTRODUCTORY. 

PAGE. 

Introduction _ _ _ _ . _ .11 

Whom it Concerns ______ 15 

The Importance op a Knowledge of Credits . _ 18 

Losses by Failures _ _ _ 23 

Mercantile Reports _ _ _ _ . .29 

ANALYTICAL. 

Analysis op Statements or Reports _ _ _ 34 

Nature op the Business 41 

Locality __.._____ 45 

Character and Habits . 52 

Ability ________ 55 

Experience _______ 60 

Application and Industry _ _ . _ .64 

Business Education _____ 68 

Honesty ________ 72 

Economy ____.._ 77 

Married or Single _ _ _ _ _ _ 83 

Age ________ 86 

Capital ________ 89 

Assets: Stock and Personal Property _ _ 94 

Assets: Accounts and Bills Receivable _ _ 98 

Real Estate — Exemptions _ 103 

Liabilities _ _ _ _ _ _ 106 

Volume op Business in Proportion to Capital . 110 
Antecedents _ _ _ _ _ _ _ 115 

Competition _ _ _ _ _ . _ 118 

(9) 



10 CONTENTS. 

PAGE. 

Punctuality _ _ _ . _ _ .122 

Productive or, Non-Productive _ _ 127 
Doing Business as Agents _____ 130 

Partnerships _ _ _ _ _ _ 134 

Doubtful Credits _ _ _ _ _ _ 139 

Joint-Stock and Cooperative Associations _ 142 

Women in Trade _ _ _ _ _ _ 148 

Chattel Mortgages and Other Liens _ _ 153 

Insurance _ _ _ _ _ _ .157 

Miscellaneous Information _ _ _ _ 161 

Old Customers _____ _ _ 167 

Limit of Credit _ _ _ _ _ _ 171 

Mercantile Reports Analyzed _ 174 
Credit: A Risk ______ 200 

FACTS IN GENERAL. 

Inventory Valuations _____ 202 

Past-due Accounts ______ 209 

Collections . _ _ _ _ _ 215 

Collections: Methods Employed _ _ _ 220 

Sharp Collectors ______ 224 

References _______ 228 

Commercial Travelers _____ 236 

Personal Interviews vs. Reports _ _ _ 241 

Chronic Borrowers _ _ _ _ _ 244 

Debt vs Independence _____ 248 

Compromises and Extensions _ _ _ _ 254 

Credit: History op 260 

Credit System ___--_- 268 
Credit: Its Relation to Capital and Labor _ 281 
History of the Mercantile Agency _ _ - 295 



INTRODUCTION. 

This treatise on ''Mercantile Credits" is the 
outgrowth of frequent requests on the part of 
business friends of the writer to give them the 
benefit of his experience "in making credits," 
so far, at least, as that might be possible in a 
very condensed form, and by laying down and 
illustrating a few fundamental principles. An 
analysis, however, of the subject showed that a 
few off-hand rules and directions on "when 
and when not to make credits" would be inad- 
equate, if not quite useless, since in no two 
applications for credit are the conditions the 
same. In the attempt, then, to be of service 
even to a few personal friends, it was found 
necessary to treat the subject in a comprehen- 
sive manner, and although this involved the 
systematic and consecutive arrangement and 
assimilation of a vast quantity of material, and 
a close scrutiny of its relationship, the task was, 
nevertheless, deemed worthy the effort. 

No apology for presenting this volume to the 
public is offered. But several valid reasons can 
be pointed out for its publication. The first 
reason is, that a better knowledge than is gener- 
ally possessed of this subject is of the utmost im- 
(ii) 



12 WHOM TO TRUST. 

portance to the business interests of the country 
at large and to individual welfare in particular. 
Secondly, the total absence of literature and 
lack of information on a topic of such vital im- 
portance to every man engaged in business, 
would seem to justify an effort to supply so 
palpable a deficiency. Thirdly, that the ex- 
perience and knowledge of one who has devoted 
a life-time to the management of "credits " in 
both mercantile and manufacturing business, 
can hardly fail of being beneficial, when made 
available to those less practiced in this special 
vocation. 

The principles and rules laid down in the fol- 
lowing pages for determining credit are such as 
have governed the writer in his own practice. 
Close observation of causes, and their natural 
and probable effects, has made it possible to 
establish certain standards, more or less fixed, 
for our guidance in all departments of business. 

ISTo new system or better methods than those 
used by many other credit managers is claimed. 
In the absence, as we have said, of any pub- 
lished work, the aim has been simply to give the 
conclusions of a long and active experience, in 
the best and most intelligible manner possible 
to the writer. As the ' ' proof of the pudding is 
in the eating,' ' the merit of the rules here given 
may be fairly judged by the results obtained in 
their daily application; and these, were it per- 
missible to give them, would be a sufficient in- 



INTRODUCTION. 13 

dorsement. This much may be said, that the 
percentage of losses sustained by houses in gen- 
eral is by far too large, and that a better un- 
derstanding of the " Science of Credits" would 
inure largely to the benefit of the business 
community and save it millions of dollars an- 
nually. 

The subject-matter has been strictly confined 
to the text, viz.: Credits. Every chapter has 
been prepared with special reference to that 
topic only; but, incidentally, the treatise will 
be found to cover the fundamental principles 
underlying business in general, by pointing out 
the causes that lead to success or failure. We 
may accept it as an axiom, that when an appli- 
cant for credit satisfies the standard of our 
requirements, we may rightfully infer that all 
the essential qualifications of a safe and good 
business-man are also possessed by him. 

No effort has been made to treat this subject 
from the standpoint of theory or political 
economy. Intended, as this treatise is, for busi- 
ness-men and for practical use, it has been pre- 
pared as concisely as possible, and to the point 
— that point being, "How to make Credits/ 



" * 



* Among business-men the term Credits is understood to 
refer to the practical functions of credit as between buyer and 
seller, and in this restrictive sense the word has been adopted, 
in contradistinction to the broader term of Credit. 
■ In speaking of the credit-man throughout this book, it will 
be understood that all persons are meant who make sales on 
time, or depend on the future fulfillment of contracts. 



WHOM IT CONCERNS. 

This work concerns and is of paramount im- 
portance to every man engaged in trade, of 
whatever kind it may be, but is of special in- 
terest to the merchant and manufacturer doing 
necessarily a large credit business. 

It concerns bookkeepers, cashiers, and ac- 
countants, upon whom devolves the duty of 
making credits in the absence of the regular 
u Credit Department," found only in the larger 
houses. 

It concerns every young man or boy who con- 
templates entering mercantile life, and the 
information it contains will be found of great 
value in whatever position he may occupy. In 
this country every boy is a possible merchant 
or manufacturer, and he can not afford to neg- 
lect this branch of his business education. 

It concerns every banker, for a knowledge of 
the elements and conditions requisite to success 
in his customer and debtor is of great import- 
ance. A large proportion of the loans and dis- 
counts of banks are made, not on securities 
actually deposited, but on the confidence felt 
in the borrower' s methods of doing business, his 
standing in the community, and faith in the 

(15) 



16 WHOM TO TRUST. 

successful management of his undertakings. 
And that the Banker's confidence may not be 
misplaced, it is essential that he make himself a 
competent judge of what constitutes favorable 
or unfavorable conditions in the merchant or 
manufacturer to whom he lends his funds. 

It concerns, also, lawyers, especially when 
acting in the capacity of attorneys for creditors. 
The wisdom and safety of their recommenda- 
tions to their clients for further time and indul- 
gence, in behalf of the debtor, will depend upon 
the attorney's knowledge of business affairs and 
of what constitutes safety; i. e., he should be 
governed in his estimate of prorjerty and assets 
by the same rules that govern and enable the 
business-man to determine questions of like 
character. 

It concerns every man in and out of trade. 
Professional men, and men in all walks of life 
can profit by its careful perusal. It is not ex- 
pected that this volume will be all-sufficient in 
itself, but it will at least furnish the funda- 
mental principles, and the processes of reason- 
ing employed in determining questions of 
credit. 

It concerns the man out of business to-day, 
for to-morrow he may engage or re-engage in it; 
in short, as we are a nation of traders, and more 
credit business is done in this country than in 
any other, it behooves every man to know all 
that can be learned on this subject. 



WHOM IT CONCERNS. 17 

It concerns, lastly, but not least, every com- 
mercial traveler, and should be carefully read 
and studied by him, that he may make himself a 
competent judge of ' ' Credits. ' ' A large percent- 
age of the credits given are made on his judgment 
and recommendation. Some agents' opinions 
are entirely relied on by their respective houses, 
but the majority of them are not good " Credit 
men." Their eagerness to make a record as 
salesmen transcends all other considerations. 
Having been a traveling man myself at one 
period of my commercial life, I know from per- 
sonal experience why so many fail in gaining 
the confidence of their firms in this capacity. 
An agent's recommendation for credit should 
be sufficient, and his firm should feel warranted 
in accepting his judgment. Where this is the 
case, the firm has gained a valuable co-worker, 
and the agent a strong foothold. To sell is one 
thing; to ' ' get our pay " is of infinitely greater 
importance. 



18 WHOM TO TRUST, 



IMPORTANCE OF A KNOWLEDGE OF 
"CREDITS." 

When we speak of commerce and trade, we 
are met by the question of their existence in a 
general way. There is suggested, their volume, 
influence of their relations on the world, and 
our collective welfare. Considering the subject 
from this standpoint, we are apt to be led to its 
theoretical considerations; that is, its civilizing, 
educational, and social influences, and to the 
student of political economy these offer a vast 
and most important field for thought and in- 
vestigation. But these problems do not concern 
us here. We have to do with the practical 
affairs of life, and the question of trade being 
one of "bread and butter," no more serious 
issue could present itself. 

Buying and selling constitute trade. If the 
transactions were all for cash, our success as 
merchants would simply be a question of who 
could buy and sell the most, and to the best ad- 
vantage, and there would be no occasion for 
the exercise of our faculties except in buying 
and selling. 

But what confronts us right here? It is the 
question of credit. As a matter of fact we do 
not do business for cash. We do it on credit 
almost wholly, and this radically changes the 
problem. Long and common usage, exj)ediency, 



KNOWLEDGE OF "CREDITS." 19 

our spirit of enterprise, and our extraordinary 
confidence in each other, have established the 
custom of parting with our property on prom- 
ises of future payment, and after once parting 
with it, we hold as a substitute, written or ver- 
bal, the buyer's promise to pay, and that is all. 
The discharge of this promise rests on the buy- 
er' s honesty, ability, experience, and a multi- 
tude of other factors. If the buyer is honest, 
our safety depends, mainly, on his success, and 
this, again, is dependent on his qualifications 
and circumstances over which he may or may 
not be able to exercise control. 

The practical and all-important questions 
then are, to make sure of our payment when 
due, and that the men we sell to are both will- 
ing and able to do as they agree. The ability 
to sell the most goods and do the largest busi- 
ness, does not in itself determine a man' s suc- 
cess; in fact, observation proves that this is 
often done unwisely and against his best in- 
terests. 

Commerce and credit are inseparable. They 
are not only inseparable, but a judicious exer- 
cise of credit-giving is the more important of 
the two. Before delivering our goods to an- 
other' s custody, our first concern must be the 
reliability of the custodian or buyer, and the 
probability of getting our money, and with it 
our profit, which is the sole object of doing 
business. This being decided, pro or con, we 



20 WHOM TO TRUST. 

then make or do not make the sale. This proves 
our position — that our ability as judges, when 
to sell and when not, comes first in importance, 
and that of salesmen comes second. 

Practically, credit is incidental to trade, 
and in our daily transactions the major part 
of trade is done on credit; i. e., it is dependent 
on our confidence in the buyer; but Mind con- 
fidence is not meant, nor will it answer. Our 
faith in men must result from the exercise of 
good judgment, large experience, a knowledge 
of men and things, and their fitness to each 
other. Is our confidence justifiable in any 
given case? That is the question. That it 
very often is not, we have learned to our sor- 
row. 

As above stated, in no country is credit so 
generally and so lavishly given as in this. Our 
whole commercial fabric rests on it. Every in- 
dividual welfare, to a greater or less extent, 
depends on credit, and the wise use of it. As a 
problem of such consequence and as a prime 
factor in our individual success, can the import- 
ance of its study, and our thorough mastery of 
it, be over-estimated? No; but that it has not 
received the attention it deserves is a fact pain- 
fully regretted by thousands. 

Hon. Edward Everett, in an address delivered 
before the Mercantile Library Association in 
Boston in 1838, stated his conviction as follows: 
"I should deem the formation of sound and 



KNOWLEDGE OF "CREDITS." 21 

sober views on the study of credit one of the 
most desirable portions of a young merchant' s 
education." The practical merchant is even 
more impressed with the importance of the sub- 
ject, as a result of his daily experience. 

Much as it is desired by the author that this 
treatise might lead his readers to infallibility in 
making credits, that is a thing beyond his ex- 
pectations. But this much is certain, in calling 
your attention to the subject, and a comprehen- 
sive study of it, not alone by these pages, but 
drawing on your own resources of experience 
and observation, it is impossible that you will 
be other than largely benefited; and if nothing 
more be accomplished than to interest you in 
the study, I shall be amply repaid. The benefit 
to you, in that case, will be analogous to that 
of a man face to face with a great danger, of 
which he has been forewarned and for which he 
is thoroughly prepared. 

That the most rigid adherence to the rules 
here laid down will avoid loss in every instance, 
is not expected. The best of business-men, the 
most conservative and experienced, ' ' miss it ' ' 
quite often enough. But there is a wide mar- 
gin between the maximum of losses usually 
sustained and the minimum to which they may 
be reduced, a difference sufficient in itself to 
make one man happy and prosperous, and an- 
other wretched and bankrupt. 

In addition to the chief object before us, which 



22 WHOM TO TRUST. 



is to become competent judges of whom it is safe 
to trust, the suggestions oifered will also be val- 
uable in regulating our own conduct, so that we 
may share the confidence of others, and be en- 
titled to credit ourselves. 



LOSSES BY FAILUKE. 



23 



LOSSES BY FAILURE. 



BUSINESS FAILURES, 1877 TO 1886, INCLUSIVE. 




NUMBER IK 


NUMBER 




AVERAGE 


PROPORTION 




BUSINESS. 


FAILURES. 




LIABILITIES. 


FAILURES. 


1877 


652,006 


8,872 


$190,669,936 


21,491 


1 in 73 


1878 


674,741 


10,478 


234,383,132 


22,369 


1 " 64 


1879 


702,157 


6,658 


98,149,053 


14,741 


1 " 105 


1880 


746,823 


4,735 


65,752,000 


13,886 


1 " 158 


1881 


781,689 


5,582 


81,155,932 


14,538 


1 " 140 


1882 


822,256 


6,738 


101,547,564 


15,062 


1 " 122 


1883 


863,993 


9,184 


172,874,172 


18,823 


1 " 94 


1884 


904,759 


10,968 


226,343,427 


20,636 


1 " 82 


1885 


919,990 


10,637 


124,220,321 


11,679 


1 " 86 


1886 


969,841 


9,834 


114,644,119 


11,703 


1 " 98 




8,038,255 


83,686 


1,409,739,656 


164,928 


10.22 



These figures, like many other statistics, con- 
vey very little meaning taken by themselves. 
They have no particular significance, except, 
perhaps, that they look large to the casual 
reader. Whether in fact, and in face of the 
transactions they represent, they are large or 
small, no adequate idea is furnished. Only by a 
comparison with the business of previous years 
are we enabled to judge of the present status 
and determine whether it is more prosperous, or 
otherwise, to those engaged in it. But for the 
close student, and for the man who undertakes 
to deduce exact facts and figures, it is necessary 
that he have some basis to work upon; yet sta- 
tistics furnishing such data are almost entirely 
wanting and are not supplied by our statistical 
bureau. Nor would the labor required to ascer- 



24 WHOM TO TKUST. 

tain such figures as are needed be warranted by 
any private individual, or even trade journals. 
Nothing short of a "Bureau of Commercial 
Statistics," under the direct patronage of the 
commercial industries themselves, will accom- 
plish anything in this direction with the neces- 
sary degree of exactitude. Such a bureau, in 
charge of a competent business -man of large ex- 
perience, one who knows what kind of infor- 
mation to collect and select, would be of incal- 
culable benefit in various ways. The informa- 
tion and figures attainable at present of the 
manufacturing and mercantile interests, par- 
ticularly the latter, are very vague and meager, 
and neither assimilation nor approximation is 
easy or possible. 

For instance, to ascertain the percentage of 
losses sustained by our merchants, it would be 
necessary to know the total mercantile transac- 
tions of the country, the capital invested in 
mercantile pursuits, and the losses by failures 
of this class. These data would enable us to 
arrive at the per cent, of loss, both on the capi- 
tal and the volume of business. 

The table given above comprises a period of 
ten years, and the condition of the country dur- 
ing that time— from 1877 to 1886 — fluctuated 
from extraordinary depression to great activity 
and prosperity, and back again, thus giving us 
a fair general average. The number of firms 
that failed each year during the ten years is one 



LOSSES BY FAILURE. 25 

in ninety; the failures aggregate the grand total 
of $1,409,739,656, equal to nearly one-half of 
the total (approximated) capital invested in 
both mercantile and manufacturing business, 
as shown further on. The yearly average of 
losses amount to $140,000,000, in round num- 
bers. Of course, the entire liabilities of the failed 
concerns which these figures • represent were 
not lost. We may assume that 30 per cent, 
was recovered; but this was temporarily tied 
up, and practically the whole sum was unavail- 
able, so far as the effect and injury to the cred- 
itor class was concerned. Deducting from the 
ten years' average of $140,000,000, 30 per cent, 
as having been realized, the net annual loss 
sustained by merchants and manufacturers is 
nearly $100,000,000. 

From the best estimates obtainable, the capi- 
tal invested in mercantile and manufacturing 
enterprises in the United States, in 1880, 
amounted to about four thousand million dol- 
lars. One quarter of this may be supposed to 
have been removed from the danger line of the 
credit system. As nearly as possible, we want 
to arrive at the capital that is affected by and 
dependent on this system, and we have, approxi- 
mately, three thousand millions of capital thus 
employed. One hundred millions annual loss 
on this sum is equal to 3^ per cent, on the total 
capital. 

To form an estimate of the percentage of loss 



26 WHOM TO TRUST. 

on the sales or transactions of the country, we 
may multiply the capital by four, as we turn it 
over probably that number of times, at least. 
That gives us a volume of business equal to 
twelve thousand millions (twelve billions), sub- 
ject to the vicissitudes of the credit system. One 
hundred millions losses makes eighty-three-one- 
hundreths of one per cent. (.83-100) loss on this 
volume of business. 

The approximate correctness of these percent- 
ages is verified by taking a certain number of 
business houses and computing the average of 
their losses on a basis of capital invested. Most 
of them do not calculate their losses on the 
basis of capital employed, but on that of the 
volume of business transacted; but here, also, 
we find the estimate verified by actual figures, 
taken and averaged from a large number of in- 
dividual cases. Proportionately, the larger 
houses lose less than the smaller ones; the 
percentage decreases with the increase in 
the volume of business, and the reasons are 
obvious. 

I desire now to call attention to the question: 
Do mercantile pursuits render the losses usually 
sustained imperative and unavoidable? In a 
measure, yes ; but in a larger measure, no. They 
are chiefly the result of carelessness, inexperi- 
ence, and a deficiency of proper discipline on 
the part of our business-men. It is a lack of 
knowledge and judgment in the matter of giv- 



LOSSES BY FAILUKE. 27 

ing credit; or, if not these, it is carelessness or 
recklessness. 

The importance of this factor in individual 
success can not be overestimated, and to illus- 
trate it we have only to take the average busi- 
ness house for the last twenty years, and figure 
up the losses sustained by it, and compare the 
sum total, with compound interest, with its 
present financial status, and we shall find that 
it has lost more than the capital accumulated 
during the period. 

This may seem a very broad assertion, but 
figures have been obtained from a sufficient 
number of houses to warrant the conclusion. 
Nor were these houses selected especially for 
their extra good or bad management; they 
represent what is wanted for our purpose, 
namely, a fair average. 

From the foregoing facts and figures, it is 
apparent that we are doing a large amount of 
business, not alone for nothing, but at a loss 
of capital, for the goods we sell are part of our 
capital, and, if lost, that much capital is lost. 
It may be asserted that the merchant adds the 
probable percentage of his losses to the selling 
price of his goods, or, in other words, figures 
his jxrofit by that much more. In that case 
the merchant would not be the loser, for the 
solvent buyers would make good the loss. But 
this view can not be accepted at the present 
day. To meet competition and hold and extend 



28 WHOM TO TRUST. 

his trade, the merchant is forced to fix his 
profit without any allowance for losses. What- 
ever loss is sustained by reason of bad debts, 
is to that extent a drain upon his earnings and 
resources. It follows, then, since competition 
enforces nearly uniform profits upon all in the 
same line of trade, that the concern losing the 
least, comes nearest realizing its calculations. 



MERCANTILE REPORTS. 29 



MERCANTILE REPORTS. 

The mercantile report is one of the many 
innovations of modern business life, and is as 
much a necessity to-day as any one of the other 
helpful needs and agents enjoyed by this, over 
past generations. Though far from perfect — in 
fact, quite imperfect — it is, nevertheless, an 
indispensable adjunct to our present methods. 
It affords facilities to the business community 
without which our extensive relations would 
be materially curtailed, and credits, and there- 
fore business generally, suffer serious restric- 
tions. That the mercantile report fills an 
absolute want is furthermore evidenced by the 
very general patronage of the mercantile agen- 
cies by business-men. In addition to quarterly 
and semi-annually revised reference books, 
they also undertake to furnish their subscribers 
detailed reports of facts and figures concerning 
the financial status of every dealer in the 
country. How far they succeed in giving reli- 
able data is left for the patrons of these insti- 
tutions to determine. They certainly succeed 
sufficiently to create an ever-increasing demand 
for their labors. The steady improvement 
year after year of the agency service is a note- 
worthy and encouraging feature. 

In the nature of things, infallibility is some- 
thing the mercantile agency can never hope 



30 WHOM TO TRUST. 

to attain, since stability of capital actually 
employed at any given time and in any given 
business, can not be depended upon. Men do 
not always confine themselves to their regular 
vocations, and capital is thus often diverted 
from its legitimate operations and devoted 
to speculative purposes, which may or may 
not be profitable. The American business 
community is especially prone to speculation, 
and, as speculation goes, it is largely at the 
expense of the regular business. Nor have we 
any remedy against this, not even when the 
creditor' s capital is directly used and jeopard- 
ized for the purpose. JSTo restrictions are j)ossi- 
ble to regulate the exercise of individual judg- 
ment in regard to the employment of money 
once in possession, either in fee simple or in 
trust. Whether success or failure attends a 
particular venture, are matters of which the 
outside world is left in ignorance, especially if 
failure should result. If successful, no one 
finds fault; if otherwise, it is too late to 
avail. 

From this alone it will be seen that the finan- 
cial status of business concerns would vary 
considerably, even from one month to another. 
Ratings would require more frequent revision 
than is possible with the present facilities of 
the agencies in order to cover these changes of 
conditions. It is usually only subsequent 
developments that bring these matters to light, 



MERCANTILE REPORTS. 31 

and that at a time when the knowledge of the 
facts ceases to be of any benefit to us. 

But diversion of capital from its legitimate 
uses, and to purposes not at all speculative, is 
also a matter of importance. Many business- 
men, from miscalculation and poor judgment, 
invest too large a portion of their working 
capital in permanent improvements and outside 
ventures, not necessarily of a speculative 
nature, and thereby tie up capital which should 
have remained a working force. Although 
real estate and permanent improvements should 
constitute the best representatives of capital 
invested, and indicate the highest order 
of assets, yet we know from experience that 
this class of property is not convertible at 
will in the event of failure, nor is it, as a 
rule, available to the creditors. The mercantile 
agency, however, has no right to ignore capital 
thus invested; it is obliged to give it a place 
among the assets and make its ratings accord- 
ingly. For this reason ' ' the keys ' ' used by 
the various agencies to denote capital are less 
to be relied upon than the report itself, for the 
latter gives details and shows what the capital 
consists of and is used in, and from these we 
can make our own deductions. The nature of 
the assets has much to do with the value of the 
ratings for the purpose of basing credits. 

This much is certain, if we could always 
make sure of getting reliable reports, whatever 



32 WHOM TO TRUST. 

their source might be, the credit man's task 
would be made easier, and losses by bad debts 
would be reduced to a minimum. The weak 
feature of the mercantile agency system is its 
dependence on correspondents, who are ex- 
pected to give their time and services gratui- 
tously, or nearly so, and we necessarily have to 
contend with frequent negligence, inaccuracy, 
and incompetency, and sometimes even personal 
favoritism or prejudice, as the case may be. 
That this has been and is being remedied to a 
considerable extent by the better class of agen- 
cies, we have evidence from the improving 
quality of service rendered. Good services 
command good pay, and it is due the business 
world that the agencies secure competent cor- 
respondents and pay and charge accordingly. 
We can afford to pay well for reliable reports; 
unreliable ones are dear at any price. 

Quite a prominent feature of many of the 
collection agencies is their list of attorneys 
throughout the country, who are under con- 
tract (without pay however) to report the stand- 
ing of business-men in their respective locali- 
ties. As auxiliaries, and used to corroborate 
other statements, they possess merit, and are 
made use of to a considerable extent. But the 
attorneys perform their labors entirely gratis, 
and the reports from this source seldom furnish 
details, but simply offer opinions that parties 
are supposed to be good or otherwise — gener- 



MERCANTILE REPORTS. 33 

ally good. The attorneys expect to establish a 
large clientage through the acquaintance made 
in this way, and their compensation, as report- 
ers, is expected to come from professional serv- 
ices in the future. 

On the whole, excepting, of course, many 
inaccuracies and misconceptions of facts, the 
mercantile agency report can be said to lean 
toward unbiased and truthful statements of 
ascertainable facts. Human nature inclines to 
well-meaning statements concerning our fellow- 
men, and this being so, we may be tolerably 
certain that a derogatory report has something 
in it for a foundation, and the credit-man 
should be slow to ignore its unfavorable com- 
ments. 



34 WHOM TO TRUST. 

ANALYSIS OF STATEMENTS OH 
REPOKTS. 

In the preceding chapter, mercantile agency 
reports only were discussed, but it was not in- 
tended to be inferred that business houses were 
dependent on these for information exclusively. 
Information regarding the standing of people 
in trade is obtained from various sources, and 
not infrequently directly from the applicants 
for credit. The object of getting a report is, 
of course, to gain such information as *will 
enable us to determine whether a certain dealer 
is entitled to credit or not, and if so, to what 
extent. But what class of information do we 
require to determine this question, and that 
will enable us to arrive at an intelligent con- 
clusion? 

The farmer who contemplates buying lands 
and settling in a new territory, will want to 
know many things before he invests his money 
and locates. His experience and knowledge of 
his vocation have taught him that simply buy- 
ing so many acres of land, regardless of internal 
or external conditions, would be very unwise; 
therefore, before he invests, he learns about the 
soil, its condition and adaptation, the climate, 
the markets, the facilities for transporting his 
produce, and a great many other things. A 
farmer should know just what is necessary for 



ANALYSIS OF STATEMENTS OR REPORTS. 35 

Mm to investigate in order to make a wise se- 
lection; and a practical farmer does know. 
With a business -man, in making credits, it is 
precisely the same. There are certain things 
concerning a would-be debtor, of which he 
must inform himself in order to judge under- 
standingly. 

As in the farmer' s case, our experience and 
business education have taught us that our 
safety as creditors is dependent on many con- 
tingencies; on qualities of mind and heart of 
the debtor; on his mental, moral, and financial 
status, and also on his surrounding relation- 
ships, etc. 

Now we find, by applying the rules of analy- 
sis to business, that it is resolvable into cer- 
tain constituent elements, and that its success, 
and our safety as creditors, is dependent upon 
the existence and proper combination of these 
elements. One of the elements or requisites 
is honesty; another, ability; another, capital, 
and so on; and when we have completed our 
analysis, we find that we have thirty different 
and distinct elements to which we should have 
answers, and on which it is important to get 
information. Each one of these elements con- 
stitutes an important factor, although some are 
of more consequence than others. To take one 
spoke out of a wheel would weaken it, though 
not perceptibly, perhaps. Industry and capital 
in business may be likened to the hub; ability, 



36 WHOM TO TKUST. 

experience, and honesty to the fellies and tire. 
The spokes come in to combine the two into a 
symmetrical and effective whole. In like man- 
ner the thirty elements or requisites go to make 
up a whole, by showing us the constituent 
parts necessary to insure our safety as credit- 
ors, and success as business -men. 

Each one of the following elements is suscepti- 
ble of individual analysis, to which the first 
part of this book is devoted. We take them 
without reference to their relative importance. 
The first thing we are usually made cognizant 
of is the nature of the business in which the 
applicant is engaged, the next thing is invaria- 
bly the place where he is located. We there- 
fore commence with: 



No. 1. 


Nature of the Business. 


No. 2. 


Locality. 


No. 3. 


Character and Habits. 


No. 4. 


Ability. 


No. 5. 


Experience. 


No. 6. 


Application and Industry. 


No. 7. 


Business Education. 


No. 8. 


Honesty. 


No. 9. 


Economy. 


No. 10. 


Married or Single. 


No. 11. 


Age. 


No. 12. 


Capital. 


No. 13. 


Assets — Stock and Personal Prop 


erty. 





ANALYSIS OF STATEMENTS OR EEPOETS. 37 



No. 14. 


Assets — Accounts and Bills Receiv- 


able. 




No. 15. 


Assets — Real Estate — Exemptions. 


No. 16. 


Liabilities. 


No. 17. 


Volume of Business. 


No. 18. 


Antecedents. 


No. 19. 


Competition. 


No. 20. 


Punctuality. 


No. 21. 


Productive or Non-productive. 


No. 22. 


Doing Business as Agents. 


NTo. 23. 


Partnerships. 


No. 24. 


Doubtful Credits. 


No. 25. 


Joint Stock Companies and Coop- 


erative Associations. 


No. 26. 


Women in Trade. 


No. 27. 


Chattel Mortgages and Other 


Liens. 




No. 28. 


Insurance. 


No. 29. 


Miscellaneous Information. 


No. 30. 


Old Customers. 



It might seem that to embody all these ques- 
tions in a statement, or rather to exact informa- 
tion on them all, would make a very lengthy 
report, and be asking too much labor from the 
agency or correspondent. But this is not so. 
An ordinary report, such as we all receive in 
our daily business transactions, is here submit- 
ted, which will be found to give satisfactory 
answers to every one of the series of questions. 
The numbers in the report have reference to 
the corresponding numbers in the foregoing 



38 WHOM TO TETTST. 

series of questions — like numbers representing 
questions and answers. 

J. M. S. — (1) Hardware and stoves. (2) Chi- 
cago, 111. (19) In business here since 1876. 

(11) Age fifty. (10) Man of family. (21) Tinner 
by trade. (9) Saved up $300, which was his 
capital when starting. (18) Came from Ohio. 
(3) Character and habits good. (8) Reputed 
honest and upright in his dealings. (4 and 7) 
Fair education and business ability. (6) At- 
tentive and industrious. (9) Economical. (13) 
Last inventory, stock $10,000. (14) Accounts 
due him, $5,000. (15) Homestead, $3,000. (13) 
Other personal property, $1,500. Total assets, 
$19,500. (16) Liabilities: Owing for stock on 
open accounts, $4,500. No other indebtedness. 

(12) Net surplus, $15,000. (12) Net capital in 
business, $12,000. (28) Insurance on stock, 
$8,000. (20) Prompt in meeting his engage- 
ments. (17) Sales last year. $35,000. 

ANYALSIS AND EEMAEKS. 

This report answers every one of our ques- 
tions, though some of them only inferentially. 
It says nothing directly of his experience, but 
we infer that he has had that for the last 
thirteen years. As to partnership, he is perhaps 
wise in not having any, and the question does 
not pertain to him; he is alone, the report says. 
His antecedents, back of thirteen years ago, do 
not interest us; his record while here is sum- 



ANALYSIS OF STATEMENTS OR REPORTS. 39 

cieht. The report says: "No indebtedness 
except on open account, " so there are no chat- 
tel mortgages or liens. In regard to doing 
business as agent, women in trade, stock com- 
panies, the report answers all these questions 
inferentially. 

We may say in regard to this man that he is 
good for his business requirements and entitled 
to credit up to the full limit, which, being a 
prudent man, as we see, he will never ask. 

He has succeeded in building up a lucrative 
business, and in accumulating a moderate capi- 
tal, which is all of an available character. To 
do this he must have combined amplication with 
intelligent management and economy. His 
available assets are $16,500. He owes $4,500, 
but would be safe for an indebtedness of 
$10, 000, or even $12, 000. His accounts due him 
are in good proportion to the business done, 
and show that he has only about sixty days' 
sales outstanding, from which we infer that he 
looks after his collections closely. The accounts 
are, therefore, not of long standing, and £>:re- 
sumably are collectible. His methods of doing 
business do not indicate that he would include 
in his showing, old, worthless bills. His annual 
sales indicate prudence and conservatism. 
Many firms with less capital would undertake 
to do more business. 

This case is not difficult to decide; in fact, it 
is an exceptionally easy one. The above indi- 



40 WHOM TO TRUST. 

cates the "usual modus operandi of examining 
a report, and the line of reasoning employed 
to arrive at a decision. 

For the purpose of furnishing material for 
analysis, and to enable those of my readers to 
whom the facilities are not offered, and who 
seek, possibly, preparatory knowledge in the 
" science of credits," I have selected a number 
of mercantile agency reports which will be 
found on pages 174 to 199. These are all actual 
reports received in the course of business; only 
such changes being made as are necessary to 
avoid identification. 

The following thirty chapters will take up 
the analytical series in the order enumerated. 



NATUKE OF THE BUSINESS. 41 



NATURE OF THE BUSINESS. 

When we contemplate investing in business, 
the first rjoint of consideration with us is to 
determine the degree of risk that pertains to it. 
In a large sense the interests of the creditor and 
the investor are identical. One risks his capital 
and time; the other his merchandise, and the 
question is, therefore, of equal imx>ortance to 
both. Now, we know that some lines of busi- 
ness are more hazardous than others, and this 
question of necessity constitutes an important 
factor for us to consider. In the analysis of 
our report we were called upon to investigate 
a retail hardware business in its relation to reli- 
ability and risk. Of this we know, from past 
and present observation, that it is both safe and 
legitimate, and that, with fair attention and 
ability, it will always do well by its proprietor. 
It has comparatively few drawbacks, and is 
exempt from many of the ills to which other 
lines of business are subject. Losses by reason 
of old stock or styles, by damage to goods, by 
age, temperature, or otherwise, are only the 
result of gross negligence and inattention in this 
business, and herein it has quite an advantage 
over others in which, from various causes, more 
or less shrinkage is unavoidable. So far, then, as 
the nature of the business under consideration 
is concerned, we call it exceptionally safe in 



42 WHOM TO TKTTST. 

fairly capable hands, and can dismiss the ques- 
tion, so far as it relates to this report. But this 
is only one of many. 

Different lines of business are subject to dif- 
ferent ills, and more of them, which aifectboth 
the debtor and creditor. It is, therefore, in- 
cumbent on us to know the detrimental or 
hazardous features in each case. A stock of 
seasonable goods always has more risk attached 
than one of staple goods, that moves every 
day, and we find correspondingly more fail- 
ures. The most hazardous goods for the retail 
hardware dealer, for instance, are stoves and 
heating apparatus,' and many a good business- 
man has been bankrupted by an + overstock of 
these, brought about by an untoward season 
or some other cause that prevented sale in 
the short time such goods are usually in 
demand. 

Of staple lines of business, a grocer's stock 
is probably the easiest to convert; but the 
grocer makes more bad accounts than the hard- 
ware man, where the ordinary credit system is 
rulable. In addition to losses from this source, 
the city retail grocer has another serious draw- 
back to success, and that is the great expense 
attending his business, which seems unavoida- 
ble if he desires to retain and advance his posi- 
tion in the trade. It results in this, that the 
closest management becomes necessary to suc- 
cess, and the money-making city retail grocers 



NATUBE OF THE BUSINESS. 43 

are few compared with the number engaged in 
that business. 

But it is not necessary to enter into details of 
every line of business, and to discuss the advan- 
tages and disadvantages of each. 

Every line of business has established for 
itself its own terms, either long or short time, 
or cash, and these have come to be recognized 
by the trade at large, and are enforced as if 
they were law. Now, we find that the most 
necessary articles to the community, such as 
flour, meats, sugar, etc., are sold nearest to a 
cash basis — in fact, they are sold for cash only 
from first hands. We here establish a starting 
point, and as articles of commerce become less 
necessary to existence and comfort, we find the 
terms lengthened out in proportion. This law 
will be found to hold good throughout. From 
time to time, as profits on certain lines of goods 
are cut down, the time is shortened also, and 
this, too, is in conformity with the laws of com- 
merce. The greater the profit, the greater the 
risk that can be taken, and the longer the time 
that can be, and is, given. 

Seasonable goods are sold on long time to 
facilitate their distribution, but they are made 
payable when the season for their use comes, 
and they are then sold for cash or on time, 
according to their nature. 

The trade in certain lines adopt certain terms, 
and their uniform adoption exacts their accept- 



44 WHOM TO TETJST. 

ance by the community at large. It is not 
necessary to state here the maxim, that the 
shorter the credit the less the risk, and vice 
versa. That is self-evident. A business in 
which the transactions are for cash, attracts to 
itself moneyed men only, who are prepared to 
meet its demands on them, and there is little or 
no risk in the ordinary sense. On the other 
hand, when time is given, it opens the gates to 
speculation on the future, and taking chances 
on what should, and under favorable circum- 
stances would, transpire. Therefore, the longer 
the time, the greater will be the opportunity for 
speculative indulgence, and the greater the risk 
to the creditor. 



LOCALITY. 



LOCALITY. 

In the case of the mercantile report cited on 
page 38 we have to do with a large city, the 
metropolis of a large section of country, with 
its vast and diversified interests. All the dif- 
ferent industries of the surrounding country, 
in a measure of the whole country, are tributary 
to it as a commercial center. Its own immense 
population, and the varied enterprises and indus- 
tries within its own limits, create demand and 
supply for an inconceivable variety and quantity 
of wares and work. The business of a large city, 
therefore, is not dependent upon any one partic- 
ular industry, whether within itself or tributary 
. to it. The prosperity of all the industries in and 
out of it, would mean exceptionally good times 
for the city dealers, and a depression in one or 
more would only measurably affect it. 

With city dealers and business houses we 
have always to consider that the competition 
for trade is very great, and the expense of 
doing business equally so. It is always an 
open question, therefore, whether a new concern 
can get on a paying basis or not. If it can se- 
cure a share of the business from the start, it is 
well. If not, a long struggle for existence en- 
sues, which time alone determines, and mean- 
while the status of the debtor is a doubtful one. 
A city merchant, with an established business, 



46 WHOM TO TEUST. 

has fewer risks and interruptions to contend 
with, than where one industry is depended on 
for the support of the community where he is 
located. 

We are called upon now to speak of some of 
the leading industries that control the welfare 
of different localities. We have farming, 
mining, lumbering, manufacturing, and other 
centers. Locality is an important factor in 
determining credits, since it gives us somewhat 
of an idea of the risk incurred. 

In old farming communities, credit can be 
given with a liberal hand, and it depends mostly 
on the honesty and ability of the debtor as to 
meeting his obligations. Crops may be poor 
some years, and prices low, and some indul- 
gences may be needed, but otherwise there are 
no contingencies likely to arise of an unfavora- 
ble character. This class of trade is not, per- 
haps, the most profitable to the retailer, but it 
is the safest. 

In lumber regions, the people as a class have 
plenty of money in certain seasons and none 
in others, and the result is that the merchants 
there, as a rule, have to carry and be carried. 
Their customers are largely composed of em- 
ployes who are paid at the close of the season's 
work, and meantime they have to be trusted 
for the necessaries and comforts of life. As 
long as lumbering can be done profitably the 
merchants are safe, but ' ' hard times ' ' in that 



LOCALITY. 47 

V- 

industry means dire calamity to everybody 
interested, whether directly or indirectly. 

Mining regions offer rich rewards to dealers 
while "the boom is on," and while they are in 
active operation. High wages are paid usually, 
and }3eople spend liberally, for both necessaries 
and luxuries. But we have seen enough of 
mining towns and localities to know what vicis- 
situdes they are subject to. What was a thriv- 
ing town three years ago is a deserted camp 
to-day. New mining towns can never be de- 
pended on to " stay put," and even the older 
mines are frequently closed for one cause or 
another and the income of the population is 
stopped for a time. All these interruptions 
affect those who supply goods, both wholesale 
and retail. The shrewd merchant does not 
necessarily avoid these districts. The trade is 
large and profitable while it lasts. He secures 
a share of it, but retires before the collapse, 
for there are usually sufficient warnings given 
to those who are on the alert for signs. 

In exclusively manufacturing centers and lo- 
calities, where the dealers depend almost wholly 
on the employes of the factories for patronage, 
the conditions are not such as to strengthen the 
stability or reliability of the dealers. They 
depend, not alone on the employes for their 
trade, but generally carry them from one pay- 
day to another. In case of a shut-down, the 
dealer is not only liable to be left without cus- 



48 WHOM TO TRUST. 

tomers, but he has also a number of bills of 
very doubtful character for the time being, 
at least until other work can be obtained or 
the mills start up again. Those who have 
been in business during the last ten years in 
such localities, especially when strikes and 
lock-outs have occurred, can appreciate the 
situation. 

There will always be traders wherever there 
is a demand for goods, no matter what the con- 
ditions or risks may be. That locality consti- 
tutes an important factor, and that our security 
and the promptness of our customers is better 
or worse accordingly, needs no further discus- 
sion. The credit-man should not fail to consider 
that the status which would be satisfactory of 
a dealer in one place would not necessarily be 
so in another. 

Another point that deserves mention here is 
the accessibility of your customers. You want 
them, preferably, where they can be reached by 
the ordinary methods used for collecting. A 
large percentage of our collections are made by 
drafts sent to banks. Towns that have no 
banks, and are too small even to support a law- 
yer, place the creditor at great disadvantage 
when he undertakes to collect. 

To insure collections in these remote places, 
it is necessary to send claims to attorneys often 
residing at a distance, and this makes the ex- 
pense quite onerous. Many people will pay a 



LOCALITY. 49 

draft drawn through a bank when they would 
be very dilatory in remitting. 

Another point also presents itself, viz.: the 
relation of locality to distance from the mar- 
kets. A retailer in Chicago, for instance, can 
do a large business on a comparatively small 
capital. He is not required to carry stock be- 
yond his daily or weekly wants. He can buy 
and sell, from " hand to mouth," and draw his 
supplies from the jobber, who practically an- 
swers the purpose of a warehouse. 

On the other hand, the dealer who is remotely 
situated from the markets is obliged to carry 
stock enough to last from one to six months, 
according to distance and location. The city 
dealer can carry a full assortment in small quan- 
tities with one thousand dollars, we will say, 
while in the other case the same assortment, with 
the increased quantities necessary, will involve 
a very much larger capital. It is apparent, 
therefore, that to do a certain volume of busi- 
ness, more capital is required in one locality 
than in another. 



50 WHOM TO TKUST, 

LOCALITY— CONTINUED. 

COLLECTION LAWS. 

In some States the debtor has more protec- 
tion than in others, and this is a vital point to 
be considered in making credits. The differ- 
ence in the protection granted to debtors in 
different localities, does not go so far as to 
make a debtor pay when he has nothing to pay 
with. Devoutly as such a law might be desired 
in the interest of commerce, its fruition will 
continue a thing to be hoped for, but never to 
be realized. But the point I wish to make is 
this: In some States, notably in the older and 
more populous ones, an action can be com- 
menced, judgment obtained, and execution 
levied in ten days, in amounts under $200, and 
in twenty to forty days a judgment is usually 
obtainable for any amount, and if property can 
be found it can be satisfied forthwith. But in 
the Western and Southern States the law's 
delays, from one cause and another, operate 
most disastrously to the creditor class. The 
sessions of the courts are farther apart, and it 
takes longer to try cases and bring them to a 
focus. After a decision is finally reached, the 
debtor' s protection comes in under the head of 
exemptions, stays, etc. 

The laws in the newer States seem to operate 
with especial reference to the protection of the 



LOCALITY — CONTINUED. 51 

inhabitants, both purposely and incidentally; 
nor may we question their justness or expedi- 
ency. New countries must offer protection in 
proportion to the hardships that await new 
comers and the risks they have to take. It is 
simply the credit-man' s duty to know what the 
laws are, and a synopsis of these is easily 
obtained. 

In the Territories, for instance, we find that a 
man of moderate circumstances may claim as 
exempt, nearly all he possesses. He is entitled to 
personal and miscellaneous property to the ex- 
tent of $1,500, to be selected by the debtor, 
which may mean twice the amount in fact. He is 
entitled to a homestead not exceeding 160 acres 
of land, or one acre in town, without limita- 
tion of value of buildings and improvements 
thereon. 

It will be seen, then, that with the generality 
of dealers, in those localities, the creditor has 
no legal foothold, and it is important to be 
cognizant of this fact when we extend credit to 
them. 

In general, and when the buyer is possessed 
of the average capital, of from $1,000 to $5,000, 
we are not justified in basing credit on his 
capital. Our safety lies in his honor, and it is 
not prudent to rely on anything else. The 
applicant for credit should, therefore, have a 
well-established reputation for upright and 
honorable dealings in those localities. 



52 WHOM TO TEUST. 



CHARACTER AND HABITS. 

The most important items on which we need 
information are the character and habits of the 
applicant for credit, and if these are not good 
we have not much use for him in any capacity, 
especially that of debtor. Ability, experi- 
ence, and even capital would hardly compen- 
sate for the lack of these two concomitant 
elements in the make-up of a debtor, any 
more than in the case of an agent or trusted 
employe. 

Character and habits are here treated together, 
for the reason that they are practically insepara- 
ble — for our purpose at least. A man may 
have exceptionally good habits and lack good 
character withal — in fact, be a thorough-bred 
scoundrel. On the other hand, he may have 
proven himself a first class, upright business- 
man, of the highest integrity, worthy of confi- 
dence, and yet have some very bad habits. 
From a business point of view, and where a 
reputation for honesty and honorable dealings 
has been established, we may be justified in 
looking lightly on some personal short -comings 
in the matter of habits. But this view of the 
case could only find justification where a 
would-be debtor had been established in trade 
for a long period. On general principles, how- 
ever, one could not afford to ignore a man's 



CHARACTER AND HABITS. 53 

habits where a credit or a trust was involved. 

Old established houses have their record. 
The great difficulty is in determining the char- 
acter of men just starting in business. Such 
may, and probably have, served an apprentice- 
ship as clerks, but nothing can really be known 
of their character as principals and business 
managers until time and opportunity are given 
to develop them. A man's habits, on the other 
hand, we can know, as they would be much 
the same either as employe or as principal. 

In extending credit, the character and habits 
of the party asking it should be searchingly 
inquired into and all the facts ascertained. 
Our security as creditors depends on these 
factors more largely than on any other two. JSTo 
applicant for credit is entitled to it unless his 
record for both honesty and sobriety is above 
reproach. The men of moderate ability, and 
of good character and habits, are the "stand- 
bys ' ' in trade, but reversing this order, we are 
liable to reverse our fortunes if we make them 
our debtors. 

Because the exceptions prove the rule, we 
can lay it down as a rule, that business-men 
who are addicted to habitual and excessive 
drinking, etc., are undesirable debtors; not 
altogether for the reason that they drink, but 
because of the inevitable consequences entailed 
through it; namely, neglect of business, loss 
of time, and unwarranted expense. 



54 WHOM TO TRUST. 

It is supposable that no sales are ever made 
without expectations of payment, and yet we 
find that men of all shades of character, and 
even " shady characters," constantly figure in 
the reported failures of the country. That 
somebody has taken stock in them is self-evi- 
dent. If they did not owe anybody they would 
have no need or inducement to fail. The fact 
that they do owe is "prima facie evidence that 
their credit was good in some quarter, at least. 
The assumption can hardly hold good that the 
creditors of dubious characters in trade were 
cognizant of the fact of such dubiousness when 
selling to them. We must, therefore, charge 
this indiscriminate and lavish dispensation of 
credit, not to a knowledge of the facts, but to 
negligence in obtaining them. And this is 
where the weakness of most creditors lies. The 
time to inquire into character and habits, and 
other things necessary to be known, is when 
you make the credit, and if there is any doubt, 
take the benefit of the doubt yourself. 



ABILITY. 55 



ABILITY. 



Ability in the abstract is one thing; ability 
in the line of our special vocation is quite 
another. No matter how great a man' s ability, 
he can not hope to master every calling. To 
select the vocation suited to our special ability, 
is the most important step in a man's career. It 
surpasses all others in its influence on our 
future destiny. If phrenology could be re- 
duced to the scientific accuracy which is claimed 
.for it, it would be a most valuable aid in deter- 
mining our special aptitude for this or that 
occupation, and failures would be the exception 
instead of the rule. 

Taking cognizance of the fact, as our statisti- 
cians show, that only five per cent, of our busi- 
ness-men succeed, we are forced to the conclu- 
sion that something is radically wrong. It cer- 
tainly is not lack of business that is or can be 
done, but lack of ability as merchants that is the 
cause of so many failures, and here is the root 
of half the evils incident to mercantile life. 
Though a man be possessed of good ability, if 
his efforts are misdirected and not in the line of 
his particular talents, his endeavors will neces- 
sarily come short of his real capacity. 

Mercantile life can be and is entered by peo- 
ple without any . preparatory schooling, and 
without reference to fitness. Any man with a 



56 WHOM TO TKUST. 

few dollars and a desire for something to do 
can become a merchant, and he naturally turns 
his attention to it as offering the greatest in- 
ducements with the least requirements. How, 
then, can we expect that mercantile pursuits 
should succeed, as a rule, when they are largely 
in the hands of incompetent men? The law of 
the survival of the fittest dooms them to failure. 

The most eminent lawyers and world-re- 
nowned doctors would not necessarily make good 
merchants or manufacturers, and vice versa. 
It may be presumed that the fact of their great- 
ness in their respective professions lies in hav- 
ing chosen vocations suited to their particular 
ability. The same may be said, and with equal 
truth, of successful merchants. 

To undertake to analyze and define ability, 
and the particular ability required to be a good 
merchant, is too large a subject to be handled 
here, and belongs more to the " Science of Busi- 
ness" than to the " Science of Credits." But 
we will state some of the qualities and experi- 
ence that observation has taught us go to make 
up the successful merchant. 

The sum total of the qualities that make a 
successful career possible may be defined as 
constituting business ability. Trifling as some 
of these qualities may seem in themselves, they 
are of the utmost importance in forming the 
combination. 

First, the merchant must be a good judge of 



ABILITY. 57 

human nature and of character. At every turn 
this quality will be required, and is especially 
important in the selection of co-workers and 
assistants. Great achievements and the build- 
ing up of large enterprises are not possible 
without good assistants, and the quality of 
these depends on him who selects them. Men 
have been known to succeed in an eminent de- 
gree with hardly any other qualification, that 
was discernable at least, than that of being able 
to surround themselves with good men, either 
partners or otherwise. This, of course, is not a 
trait that can be cultivated very much. It is 
natural to some, the same as other special gifts, 
but it is of the utmost importance to all busi- 
ness-men. 

The merchant must be a good judge of values. 
This is essential, as profitable sales depend on 
judicious purchases. The trader is born with 
an intuitive knowledge of values and goods, of 
the needs and desires of the people, and that 
knowledge is his stock in trade to commence 
with. He has also a quick insight into the re- 
lations between actual needs and "man's pro- 
gressive wants," and measure of pecuniary 
ability to gratify the same. 

The merchant must have large executive 
ability, and be an organizer. New combina- 
tions are constantly forming as his business 
expands and conditions change, and he must be 
equal to the emergency of meeting them and 



58 WHOM TO TEUST. 

adapting himself to them. Quick discrimina- 
tion and ready decision are indispensable fac- 
tors in his make-up. 

He must have the quality within him to de- 
sire to keep and to accumulate. All men have 
this desire to keep, in theory, but not in prac- 
tice. To practice it, requires self-denial, and 
that is by no means a universal trait of char- 
acter. 

The merchant's business is one of endless de- 
tail, and the closest attention is requisite. It 
is not the large affairs only that require super- 
vision; unless the small matters are looked 
after, large ones will never present themselves. 

Singleness of purpose in the merchant is es- 
sential to success, coupled, as it must be, with 
indefatigable energy. A man' s energies must 
be bent in one direction and to one pur- 
pose for the achievement of success in his 
particular line. No man has more temptations 
offered him for outside ventures and money- 
making schemes than the merchant, and it 
requires a strong make-up to be proof against 
them. The cause of innumerable financial 
wrecks can be found here. 

To be a good financier is an important requi- 
site in the merchant; but not in the sense in 
which that term is generally used. The term 
financier is presented to us in the light of a man 
who goes head-over-heels in debt and complica- 
tions, and then extricates himself as best he 



ABILITY. 59 

may. The good merchant avoids complications 
that might imperil control and thorough mas- 
tery over his own affairs; his obligations are 
based on certainties to fulfill, so far, at least, 
as human sagacity can determine. 

These are some of the elemental traits that go 
to make up a good merchant. Others could be 
added, bnt for the purpose of this chapter fur- 
ther analysis is unnecessary. 



60 WHOM TO TKUST. 

EXPERIENCE. 

Of ability, experience, education, character, 
and habits, it would be difficult to say which is 
the least important or most indispensable. 
Each would seem to be a sine qua non, though 
incomplete in itself. To engage in any busi- 
ness without experience nowadays, a man 
might be likened to a ship without a rudder, 
and the chances for the inexperienced are grow- 
ing less and less each year, in the ratio that 
our standard of knowledge and experience is 
raised. In the country we often find good 
farmers allured to store -keeping. They can 
illy be spared as farmers, as they are trained 
and experienced in that calling, but as mer- 
chants they could well be spared, and usually 
are, after a short probation, when they find 
themselves wiser, but poorer, men. The credit- 
man calculates on about how long the "farm 
money" will hold out, and extends his accom- 
modations accordingly. 

The aggregate knowledge that has been 
acquired by personal observation and actual 
trials is called experience. The kind of experi- 
ence we are looking for is of a specific char- 
acter and confined to some one branch of 
business, and there is no department in trade 
to-day that does not offer sufficient scope to 
monopolize all a man's time and attention. 



EXPERIENCE. 61 

The more difficult any business or profession is 
to learn, the fewer will be the competitors to 
invade it, and herein lies our compensation for 
its mastery. 

Every business has its ups and downs, its 
good and bad sides. Experience in a particular 
business enables us to foresee and provide 
against emergencies, which the inexperienced 
mind is incapable of doing; and, further, it 
enables us, in a large degree, to control circum- 
stances, instead of being controlled by them. 
'We select our doctors and lawyers from the 
ranks of those who can give us the benefits of 
a long practice and consequent experience. 

The experienced man is always equal to the 
emergencies as they arise in his special depart- 
ment. He has been through all phases of 
u dilemmas," and they neither dishearten nor 
demoralize him. His experience has furnished 
him with the resources to combat or ward off 
the impending danger. He knows how to avoid 
the shallows and the rocks, because he has 
learned exactly where they are. What would 
appear to others insurmountable barriers, cause 
him no uneasiness. He has learned to distin- 
guish the path that leads by easy stages. 

Men going into new lines of business are con- 
stantly at sea, and the elements seem always 
contending against their struggling craft. The 
man brought up to a particular business, how- 
ever, feels as safe and secure in it as if it were 



62 WHOM TO TRUST. 

a fortress, and is able to withstand any ordi- 
nary assaults from without with comparative 
composure. This much for experience. 

On the other hand, take a man without 
experience, and every mole-hill appears like a 
mountain, and as one is surmounted another 
looms up before him. "Hills peep o'er hills, 
and Alps on Alps arise." We are largely crea- 
tures of habit. The experience acquired by 
the father is, in a large part, the inheritance of 
the son. Members of successive generations 
follow in each other's footsteps in their selec- 
tion of occupations, and the experience and 
accumulated stock of knowledge of one genera- 
tion is readily appropriated by the next. The 
average boy, brought up in his father s store, 
is conversant with nearly every detail of the 
business, and seems to come by it without any 
particular effort. 

Capital and experience yoked together make 
a strong combination and lend to our business 
ventures the greatest probability of success. 
Experience alone is capable of acquiring capi- 
tal, and of commanding it. Confidence in the 
individual to manage wisely, and with experi- 
ence, is the key to credit, and in procuring 
credit we procure capital to use in the further- 
ance of our special enterprises. But the pos- 
sessor of cajrital alone, without experience, is 
dependent on others who have experience to 
make his monetary possessions productive, and 



EXPERIENCE. 63 

this accounts for the large amount of money 
that is always at the command of experienced 
men. Experience, therefore, in being able to 
command capital, is a most important factor. 
Millions of dollars are intrusted to the man- 
agers of large corporations, men whose experi- 
ence is considered a sufficient guarantee to the 
investors that their funds will be safely and 
profitably invested, and we see in this the force 
of our argument. To experience, therefore, 
quite as much as to capital, do we owe the 
advancement of our commercial and industrial 
interests. The surplus accumulations of capi- 
tal, not less than the capital owned and con- 
trolled by inexperienced individuals, is thus 
brought into productive use. 

To acquire experience requires time and 
patient toil. Money can combine with it ad- 
vantageously, but it can not buy it, though the 
instances are not rare where one is exchanged 
for the other. Money is very often exchanged 
for experience, though under protest on the 
part of the money -owner. 

In making a credit we need hardly call 
attention to the importance of considering the 
applicant' s experience. 



64 WHOM TO TBUST. 



APPLICATION AND INDUSTRY. 

John Jay said of a contemporary: "Had 
his application been equal to his talents, his 
progress might have been greater." 

A man may be possessed of good ability and 
otherwise excellent qualities, but if he lacks 
application and industry, his chances of success 
will be very precarious, and this holds good, 
especially in mercantile life. In no occupation 
are indefatigable energy and close attention so 
indispensable to success as in that of the mer- 
chant, and if he is not willing, in this age of 
competition and push, to devote himself assid- 
uously and energetically to his calling, he can 
hardly hope to accomplish great results. The 
merchant' s life is not a path of roses. It means 
hard work day in and day out, and even 
though the more laborious part of the work can 
be delegated to others, his active presence 
during business hours is nevertheless requisite. 
Irregularity and negligence in the proprietor 
are contagious, and, unlike good qualities, 
spread readily to every employe, and to every 
department of his business. Constant personal 
superintendence and vigilance are required to 
keep the business up to its full tension, and to 
infuse into everyone connected with it that 
spirit of endeavor and individual effort which 



APPLICATION AND INDUSTRY. t)5 

is essential to the attainment of the greatest 
success. 

The man who would and who does succeed 
as a merchant is not the man who neglects his 
business to attend to the various sports that 
attract people generally. " Business before 
pleasure " is an inexorable law to him, and he 
who undertakes to reverse this order will surely 
reverse his business and his future. 

It is the steady pull in one direction and con- 
stant watchfulness of your own particular busi- 
ness that is needed to succeed in mercantile 
life, and to keep fully posted on all the details 
of your business and its ever- varying status, re- 
quires more labor and attention than the average 
man comprehends, or if comprehending, is will- 
ing to bestow, even were ultimate success assured 
him. Men work hard without necessarily com- 
bining the quality of prolonged and steadfast 
application. They labor to get bread and but- 
ter, because they can not procure it without. 
But a capacity and willingness to work, coupled 
with application, signifies vastly more. It 
indicates both physical effort and will-power 
to accomplish a purpose, and this not only for 
direct and immediate gain, but for future bene- 
fits. Likewise, application means stick-to-it- 
iveness, and trusting to the law of compensation 
for your reward, which is always sure to fol- 
low, provided the "bumps" of application and 
industry are not overshadowed by those of an 



66 WHOM TO TRUST. 

antagonistic or neutralizing character. Very 
industrious people are sometimes known to 
make little or no headway financially, but to 
this we have simply to say, that man was 
given Hve distinct xmysical senses, and if we 
should find a man with only the sense of touch, 
though it be abnormally developed and culti- 
vated, we should still pronounce him an imper- 
fect creation, and so with the mental faculties. 
In temperaments, we cite the happy medium as 
our ideal. The individual to whom fortune 
has decreed a harmonious combination and co- 
ordination of all his faculties, to him has been 
given to enjoy the highest estate of man. 

" Sammy, take care of your shop, and your 
shop will take care of you," was the advice of 
a Hebrew father to his son, and the admonition 
came from a competent source. Our Jewish 
brethren succeed in business, or anything else 
they undertake, to a much greater degree than 
any other class; but notice their methods. 
Causes have their effects, and industry its 
reward. Who works harder and devotes him- 
self more closely and unwearingly to his call- 
ing? He not only keeps watch of every detail 
of his business, but he is always on hand to 
give it personal attention. He does not run his 
business by proxy. 

Reports usually say "attentive to business," 
or " not attentive," with more or less details on 
the subject, as the case may be. Inattention to 



APPLICATION" AND INDUSTRY. 67 

one's business is inexcusable, and is sufficient 
cause for lack of confidence — in fact, no man is 
entitled to credit who neglects his own business. 
The business-man, in his function of creditor, 
can not afford to ignore so important a factor 
of strength or deficiency in his debtor, as 
amplication and industry. 



WHOM TO TRUST. 



BUSINESS EDUCATION. 

In France, England, and other countries, 
commerce is classed among the sciences. Al- 
though it must of necessity be as mnch a sci- 
ence in this country as elsewhere, we have been 
content to let the science part take care of 
itself, while going in "on our muscle," and mak- 
ing all the money w T e can. But. when we con- 
sider how little attention is paid in this country 
to business training, and how much time is 
devoted to other callings to fit our youth for 
active, intelligent work, the conviction is forced 
on us that Ave are lax in our appreciation of 
proper discipline. 

Commerce rules the world to-day, and more 
people are engaged in it for their living than 
in all other callings combined. This being the 
case, and our individual and collective welfare 
being dependent on our efforts as business- 
men, why should we or how can we aiford to 
remain indifferent to the really practical part 
of our education? 

To be sure, our boys start out in life by tak- 
ing clerkships. These should be, properly, 
apprenticeships, and in some cases they serve 
that purpose; but with the large majority of 
cases they do not. The eagerness to get a 
dollar a week more is the all-absorbing ambi- 
tion, and to stick to some one thing, and learn 



BUSINESS EDUCATION. 69 

it thoroughly, is of secondary importance. As 
a rule, our boys start out to get ' ' something to 
do," without thought on their part, or that of 
the parents, as to the selection of a permanent 
business to be followed throughout life. 

The American boy is always on the alert for 
more money. As a quality in itself, it is com- 
mendable and essential if he selects commer- 
cial life for his vocation; but how much more 
effective would his efforts be, if his native 
genius were combined with correct discipline 
and methodical training? 

The wise and well-meaning parent is anxious 
to secure a clerkship for his son in some old, 
reputable house, without especial reference to 
pay. He wants him not only to learn some 
particular branch of trade, but he is desirous 
that correct principles, along with the general 
routine of business, should be instilled into his 
mind. 

In youth we are impressionable, and our 
faculties are equally susceptible to good or bad 
influences. Now and then we find even boys, 
who are a ' ' law unto themselves ' ' in their quick 
discrimination between right and wrong, good 
or bad, methods; but, as a rule, imitation is the 
most active faculty. 

The youths of the Athenian age were sub- 
jected to the most rigorous training and disci- 
pline to make of them soldiers and warriors, 
and to fit them the better, they were educated 



70 WHOM TO TRUST. 

as well in all the known branches of science. 
Thorough discipline of mind and body were 
carried to the extremes of hardship and priva- 
tion. Bnt in onr day, commerce has super- 
seded the art of war, and holds sway over all 
the world. The sword and the spear are con- 
verted into plowshares and other implements 
to be used by an army of wealth-producing arti- 
sans, instead of an army of bread-consuming 
idlers. The soldiers and warriors of the Athen- 
ian age have given place to the merchants and 
manufacturers of to-day, and why should not 
our fighting forces be as well equipped now as 
then? 

The great question before the nations of the 
world in this generation, is that of commercial 
supremacy. Legislative enactments and politi- 
cal measures are devised for the development 
of our resources, and to facilitate the exchange 
of products, all with the view to our national 
growth and advancement, and for securing that 
supremacy for our own country. Considering, 
then, how momentous the question, not less, 
however, than the capacity and prestige of our 
competitors, if we would meet them success- 
fully, we must bring to bear, not only our nat- 
ural advantages, conditions, and aptitude, but 
we must raise these to their highest capabili- 
ties by training and cultivating our minds in 
that direction. 

This article is confined to the merits of a 



BUSINESS EDUCATION. 71 

practical business education, and is not intended 
to enter the domain of education in general. 
Most of our business-men are self-educated. 
What degree of primary education should be 
necessary for a business-man to have, is outside 
the jurisdiction of this work. We have to do 
with business education and training only, in 
so far as it has any bearing on the subject of 
making credits. 

The applicant for credit has either served an 
apprenticeship or has not. If he has not, he 
is still to serve, and in trusting him, we are 
trusting to the chance of his serving it to a 
purpose. If he has served his time, and 
acquired a knowledge of business, it is desir- 
able to know how, where, and what were the 
surroundings and influences. 



72 WHOM TO TEITST. 



HONESTY. 



We have here to do with honesty as we find 
it in our every-day business transactions with 
one another, and in thus confining the subject 
within these limits, we shall find that honesty 
is somewhat elastic. The moment we apply 
the moral law to it, the subject becomes more 
rigid and inflexible; but to measure our mer- 
cantile transactions in general by the moral 
standard, could not help being disastrous to 
many a fair business reputation. Our business 
affairs are governed by our civil laws, and each 
man can draw upon the moral law and be gov- 
erned by it, additionally, as much as he pleases. 
The former exacts only conformity to the let- 
ter; the latter to the spirit; hence the man who 
pays his debts dollar for dollar, and discharges 
his obligations according to the letter, must be 
called honest. Our business code asks for 
nothing more, and how far he may fall short of 
the moral code, we leave for him to settle. 

Shakespeare says: "To be an honest man is 
to be one in ten thousand." His measure must 
have been the moral law, for we can not think 
that commercial honesty, even in his day, was 
at such a fearful discount. That honesty is 
develo^)ed in man along with his other traits, 
and in the same ratio, must stand an admitted 
fact, otherwise our "philosophy of evolution," 



HONESTY. 73 

our ideas of human progress, would be wanting 
in their very essence. 

Speaking from a commercial standpoint, and 
confining ourselves to those engaged in mercan- 
tile pursuits, we find them honest; i. e., with a 
liberal allowance for exceptions, as in other 
rales. The surprise is rather that people in 
trade or out of it are as honest as we find them, 
when we consider the fact that a man who is 
half-way sharp, can not alone be dishonest and 
succeed in defrauding his creditors and his 
friends, but he can evade the clutches of the 
law with equal success. What, then, tends to 
make men honest? In the first place, the 
quality is innate in man. The germ of honesty 
is in every civilized breast, though variously 
developed. Secondly, the quality of honesty 
finds compensation in its own exercise. Hon- 
esty has its reward, present and future, 
although it may not always come in the man- 
ner expected or most desired. 

The world's experience, if not his own, has 
proven to the merchant that he can afford to be 
honest. He has no need to stifle that generous 
and manly impulse, for doing so, is more likely 
to strew his path with thorns than with roses. 
After a man has succeeded in gaining a compe- 
tency, there is no longer any incentive to dis- 
honesty, and he values the good opinion of his 
fellow-man quite as much as his possessions, 
and no reason exists for sacrificing either. On 



74 WHOM TO TRUST. 

the other hand, the merchant who still has his 
mark to make, can by no force of reasoning 
afford to be dishonest, even though he were 
dead to all sense of honor. If men could engage 
in enterprises to-day, and to-morrow retire with 
sufficient spoils to make them reasonably inde- 
pendent for life, no doubt the temptation would 
prove too great for many a man who now 
struggles along, and will continue the struggle, 
as an honest man. But even this case is not 
derogatory to our faith in the innate and prac- 
tical honesty of man. The temptation would 
assail those only whose character is too weak or 
whose desire for luxurious living is too great to 
resist it, and in either case it will simply prove 
that there was a lack of coordination of the 
mental faculties. Children are born deficient 
in their moral and mental, as well as physical, 
organizations sometimes, and that we find occa- 
sionally a conscienceless, unscrupulous member 
of society, must be accepted in the light of 
other phenomena, and as forming the exception, 
and not the rule. 

"Honesty is the best policy," is a truism, 
the force of which we all appreciate as a gospel 
truth, whether we have been honest or not. 
The dishonest man believes it, though he can 
not speak from his own experience. He prob- 
ably does so, however, from observation and by 
comparison. Perhaps the most convincing 
proof of the correctness of the maxim was 



HONESTY. 75 

given by an old merchant on retiring from busi- 
ness. He was giving his farewell advice to a 
yonng man who had served him faithfully, and 
in whom he had taken a deep interest. He 
concluded by saying: "My son, let me repeat 
to you that honesty is the best policy. I have 
tried both ways, and I know." Here was a 
man who was willing to acknowledge that he 
had tried both ways, and by actual experiment 
had found that the adage was true. 

I find in the Bankers' Monthly for October, 
in an address delivered by Mr. L. J. Gage, of 
the First National Bank, of Chicago, the fol- 
lowing axiom laid down: " All good men love 
the approval of the good, and all bad men are 
held in check in fear of the good man's re- 
proach." The fundamental principles enunci- 
ated here bear out the argument that man nat- 
urally leans toward truth and honesty and 
against their opposites. 

Integrity is the rock on which the vast com- 
mercial interests of the world are resting for 
their foundation. Annihilate that, and we 
destroy trade and commerce, and in the train 
of its destruction will follow civilization and all 
the benefits arising out of it. Without faith 
and confidence in each other's honesty there 
can be no credit, and without credit very little 
business. 

To be honest, to do your duty toward your- 
self and your neighbor, is not a specially meri- 



76 WHOM TO TEXJST. 

torious act. An obligation or a dnty is dis- 
charged with its conscientious performance, and 
that simply ends it as it ought to end. But the 
failure to perform the duty, the act of being 
dishonest, for this there can be no excuse on 
either moral or business grounds. 

If your applicant for credit can not show a 
clean record as regards honesty, let him apply 
somewhere else. You can not afford to take 
any chances on him. Even where we act most 
advisedly, the percentage of loss is large enough 
without taking extra hazardous risks. 



ECONOMY. 77 



ECONOMY. 

With every advantage of capital, ability, 
and prestige, a merchant's ultimate and perma- 
nent success would still be a matter of doubt 
if he did not combine economy with his other 
good qualities and advantages. Extravagance 
is the cause of innumerable commercial wrecks; 
it is the reef on which many a good craft 
founders. Extravagance, in the sense used 
here, has a wide range. A man may spend 
$50,000 a year and yet not be prodigal; whereas, 
another would not be warranted in spending 
$2,000, or even $1,000. This depends entirely 
on a man's income, and what portion of it is 
assured beyond all reasonable doubt. 

All fortunes, the largest not excepted, accu- 
mulated in mercantile pursuits, or, we might 
say, in any pursuit, are the result of strict 
economy, and this applies to personal, as well as 
business, expenses. You can not have the golden 
eggs and eat the goose that lays them. The ex- 
periment has been, and always will be tried, but 
it will never be attended with success. In sum- 
ming up the lives of our eminent merchants 
we shall always find, underlying and combined 
with other sterling qualities, that cardinal 
quality of economy, and how far this consti- 
tutes a factor in their success, I will endeavor to 
show. 



78 WHOM TO TKITST. 

The poor man, and even the moderately suc- 
cessful, envies the prosperous and wealthy mer- 
chant, and fails to see any present indications 
of economy in the latter' s method or manner of 
living. He fails to see where economy cuts any 
figure, and, looked at from a present stand- 
point, the merchant certainly does not appear 
to deny himself any pleasure or comfort that 
money can buy or heart can wish; but economy, 
nevertheless, is the main factor in bringing 
about the difference in circumstances between 
him and his less-favored brother. Causes have 
their effects. We look at the wealthy mer- 
chant of to-day and see riches and independ- 
ence, but these are only legitimate results of a 
first cause, and though the cause is remote 
from our point of observation, and is lost sight 
of, it nevertheless has existence, and we want to 
make sure of this fact. It is safe to say that 
the merchant, whom so many envy, would 
never have become an object of envy unless he 
had possessed the quality of practical economy 
in his make-up at a time w T hen it was requisite, 
and when, to build a solid foundation, it was 
necessary to practice self-denial and make 
every cent available as working capital. 

The men who do the envying would rarely 
have been willing, under similar or any circum- 
stances, to have suffered the voluntary priva- 
tions and hardships which all self-made and 
successful men have endured. The early strug- 



ECONOMY. 79 

gles of all merchants, who have amassed fort- 
unes and built up colossal enterprises, read 
much the same, and in many cases their early- 
habits of personal economy and simplicity are 
retained long after the need exists for counting 
the pennies. 

Man as a free agent has full control over the 
exercise of this faculty, and to practice fru- 
gality and self-denial is a voluntary act. To 
practice economy when compulsory, can not 
be designated a virtue. It is a virtue only 
when man's will-power is exercised in the 
direction of voluntarily renouncing present 
comforts for the accomplishment of a future 
object; that is, eventual success and independ- 
ence. 

Some writer has said that economy is the 
parent of liberty and ease. The purpose of 
going into business, primarily, is to make a liv- 
ing and to provide for our daily wants, and the 
majority of j)eople in trade make no more. It 
is even questionable if they make that, when 
we consider how much money is annually con- 
tributed through failures, and this certainly 
goes toward the maintenance of those who 
have not succeeded in making a living in their 
respective callings. Simultaneously with the 
merchant' s desire to make a living comes the 
ambition to make something more, to store up 
the fruits of his labors for his declining years 
and for the dependent ones. Eventual liberty 



80 WHOM TO TRUST. 

and ease are the motives; but this desire, innate 
though it be in our civilized communities, can 
only become an accomplished fact under favor- 
able conditions, and when the fundamental 
requirements of trade are complied with. That 
they are not, is proven by our trade statistics. 

"We know, for a fact, that consumers will buy 
more when they can do so on credit than when 
they have to pay cash, or have made it a rule 
with themselves to buy only for cash. With 
the dealer the temptation has a double potency. 
For his personal wants and indulgence, he has 
both money and merchandise iinder his imme- 
diate control, though he may be indebted for 
both, and not even a formal request for credit 
is necessary. He simply takes what he wants 
and uses it as he sees fit. When his own and 
his creditor's property is consumed, we have 
the announcement of a failure. When we con- 
sider, then, the ease with which wants can be 
gratified, and compare it with man' s capacity, 
or rather incapacity, to resist temptation, the 
smallness of the number of successful business- 
men is no surprise. If the practice of economy 
were a universal trait, there would be less pau- 
perism and poverty. It is the opposite trait in 
man, however, that prevails. Profligacy and 
extravagance are the causes that disturb indi- 
viduals and society. 

For practical illustrations of what economy, 
or the want of it, will accomplish, it is only nee- 



ECONOMY. 81 

essary for the reader to look back, say twenty- 
live years, and recall the honses in business, 
and see how many, or rather how few, have 
survived till the present time. There must be 
reasons for this, and a careful examination 
will reveal them. It will be found invariably 
that the survivors have been of the careful, 
conservative, and rigidly economical class. 
They haven't made haste, neither have they 
made waste. Of a certain twenty-five large 
houses doing business twenty-five years ago, I 
find to-day but two in existence. Personal 
acquaintance with the business methods of all 
these houses leads to but one verdict. It was 
simply a question of economy versus extrava- 
gance and careless management. The man who 
is economical is always careful. 

Money put out at interest accumulates fast. 
Invested in business, money is calculated to, 
and should, bring a larger return than ordinary 
interest. Judging from the past ten years, a 
dollar kept in business and allowed to accumu- 
late, should double in about six years. Now, 
as an illustration, we will take two houses: 
"A" draws $4,000 for his expenses; "B" 
$8,000. In ten years behold the difference in 
their relative financial conditions, all other 
things being conducted equally favorably. 
iC A's" savings of $4,000 per year over "B" 
will give the former, at the end of, ten years, 
about $80,000 excess capital. This $80,000 and 



82 WHOM TO TRUST. 

its compound accumulations of profit, if retained 
in the business another ten years, will consti- 
tute in itself an independent fortune. I make 
this calculation simply to give a cursory glance 
at what saving and economy will do, when put 
to a practical and mathematical test; and these 
figures don't lie; they apply in all cases. 

The great difficulty with man is, that his 
wants are more progressive than his income. 
To make our business and our profits increase 
is a difficulty out of all proportion to the 
facility with which we increase our wants and 
expenses. It takes more determination and 
will-power to preserve the equilibrium between 
these two factors than the average man pos- 
sesses, and herein lies, largely, the cause of 
failure among business -men. 

To the merchant, then, about to extend credit, 
the question of economy is of paramount 
importance, since the applicant's success and 
our safety depend largely on this one factor. 



MARRIED OR SINGLE. 83 



MAKRIED OR SINGLE. 

It might seem that whether a man was mar- 
ried or single, conld have no pertinency to the 
question at issue, and that it could hardly con- 
stitute a factor in our consideration of his claim 
to credit. But a man' s social status does have 
a bearing on the subject, both present and 
remote; and while we may be neglectful of its 
importance in many cases, it does not signify 
that we can really afford to be so. 

The words credit and trust are, in a sense, 
synonymous terms. We necessarily place trust 
in a man who gets credit from us. We trust to 
his honesty or responsibility, or to legal redress, 
to enforce the fulfillment of his contract; other- 
wise, we should never extend credit to any man. 
We have confidence in a man to trust him with 
our goods or money, and we are his creditors; 
or he may have our confidence as employers for 
a place of trust as agent or employe. Either 
case is one of trust, pure and simple. 

Now, it will be found that in applying to a 
house for a position of trust, one of the lead- 
ing questions asked will be if you are mar- 
ried or single; and the question is not an im- 
pertinent one, or asked out of mere curiosity. 
All things being equa], the man with family will 
have the preference; and the reason for it is 
founded on the presumption that the latter, 



84 WHOM TO TRUST. 

owing to his family ties and domestic respon- 
sibility, is considered more in the light of a 
permanent fixture, more settled, and is credited 
with a greater degree of stability. The single 
man, on the other hand, without family ties 
and considerations, and who has no one' s wel- 
fare to consider, and no reputation and charac- 
ter to injure but his own, is undoubtedly more 
prone to questionable habits and is an easier 
prey to temptations. If some irregularity, either 
premeditated or otherwise, imperil his safety, 
there is nothing to hinder him from getting 
out of the law' s reach on short notice. 

This is the way, at any rate, in which the 
case is summed up, though oftentimes quite 
unconsciously. 

The 'cases of a trusted employe or agent and 
that of a debtor, are identical, and the argument 
will apply with equal force to both. 

No clairn is made here of greater honesty of 
the one over the other. The innate honesty of 
both is precisely the same, but difference in 
conditions and surroundings is liable to cause 
different actions and ambitions. The married 
state with a man favors personal economy, con- 
centration of effort to a purpose, the mainspring 
of that purpose being the comfort and welfare 
of his family. We furthermore recognize as a 
fact, that if a man in business be a married 
man, he has a greater incentive to apply him- 
self more closely to business and to devote all 



MARRIED OR SINGLE. 85 

his energy and ability to his success. Our whole 
social and commercial fabric is based on the 
individual effort and desire of each man to raise 
his family to the highest degree of respect- 
ability and independence. 



86 WHO}! TO TRUST. 



AGE. 

The age of a man, if lie is about to be your 
debtor, is not an unimportant factor in deter- 
mining his claim to credit. Our dependence is 
not alone on ability, honesty, and other ele- 
ments, but we rely, from the nature of things, 
on energy, ambition, and large combativeness. 
These qualities in the aged or infirm are on the 
wane, and in the very youthful business-man 
are often, we might say generally, misdirected 
for want of experience. After a man has 
passed the prime of life our confidence decreases 
in the ratio of his advancing years, and conse- 
quent decline of vitality and active usefulness. 
This, of course, only applies to cases where men 
past their prime engage in new undertakings, or 
who have struggled unsuccessfully up to late 
in life without gaining a firm footing. The lat- 
ter form quite a numerous class. 

For an aged man to engage actively in busi- 
ness for a livelihood is to us an admission, un- 
consciously, perhaps, that thus far his mercan- 
tile career has been a failure; and taking the 
past and best part of his life as a criterion, 
what can be the reasonable expectation for 
future success when pitted against younger 
men, keen competitors, and newer methods? 
And, on this question of different methods, it is 
a fact that, though the ways of doing things 



AGE. 87 

change, men do not change with the changing 
methods. Men accustomed to the ways and 
methods of doing business fifty years ago 
could not become reconciled to our way. There 
is a limit to man's tenure of progressiveness, 
and that once passed, he either becomes passive 
or obstructive. But, fortunately for the world, 
the wane of energy and combativeness resulting 
from age induces passiveness, and permits 
younger men and the genius of succeeding gen- 
erations to build on the foundations laid by our 
seniors. All things in this world are wisely 
arranged to the end that man's progressiveness 
and development may not be retarded. 

The argument that the credit-man would nat- 
urally use with reference to a would-be debtor, 
past the prime of life, would be based on the 
possibility of failure and the chances of secur- 
ing his account after that. This case would 
present little encouragement. The chances of 
recovery, and subsequent ability to pay, can 
hardly be considered. With a young or mid die- 
aged man, however, we feel that his tenure of 
life is long enough, so that a judgment may 
eventually be good ; or at any rate, we may choose 
to compromise and let him continue, and thus 
recover our loss indirectly through his future 
patronage. In the latter case we feel justified 
in speculating on the possibilities of the future, 
which we are denied in the former. 

Extreme youth also needs consideration, and 



88 WHOM TO TKITST. 

makes our chances equally precarious, though 
for different reasons. A very young man, if he 
fails, seldom sticks to the ship. He either feels 
that he has had quite enough experience in the 
line he was engaged in, or knows just enough 
to know that he has mistaken his calling, and 
in either case he generally seeks employment 
for which he thinks he is better adapted. Gen- 
erally, he is lost sight of by his old creditors and 
those interested in his first business venture, 
and by the time he gets ready to embark in 
business again, old claims against him are for- 
gotten or outlawed. 

The experience of all business-men is corrob- 
orative of these statements concerning the ex- 
tremes of youth and age, and the credit-man 
should take full cognizance of them. 



CAPITAL. 89 



CAPITAL. 

We have thus far dwelt on the importance of 
things which in themselves would not pay 
bills. We can not take five dollars' worth of 
experience or of ability and use it as collateral, 
or as an equivalent to money value. We can, 
however, use our experience and ability in such 
manner as will produce the five dollars, and 
with the proceeds pay the debt. 

The man who loans you his property — that is 
to say, trusts you with his goods — does so with 
the belief that their value will be augmented 
by the aid of your experience, ability, and 
labor. Absolute confidence in your integrity 
are the conditions of such a credit, but, in the 
generality of cases, the creditor would also re- 
quire, for his safety, a proportion of capital, to 
be furnished by you, and the larger that pro- 
portion of capital is to the credit asked, the 
better it is for both debtor and creditor. 

If all men paid spot-cash for all they bought, 
there would be no need of questioning their 
ability, honesty, or anything else. Trade dis- 
tinguishes between neither race, color, nor 
religion. 

The amount of capital required in any given 
case to insure safety and success, is an uncer- 
tain quantity, ranging from to 100. Some 
men have the faculty of making money, or rather 



90 WHOM TO TKUST. 

of accumulating it, under the most unfavorable 
circumstances, while others, even more favora- 
bly situated, can never make both ends meet. 

In the customer, therefore, asking credit, we 
have to consider all the elements that go to 
make up a good business-man, and let the cap- 
ital be the last consideration instead of the first; 
though it would seem that so important a factor 
as capital, should be the primary consideration. 
As we find business conducted, it must stand as 
an admitted fact, that few houses — wholesale, 
retail, or manufacturing — restrict their business 
to a basis of their cash capital. We may safely 
calculate that nine out of ten could not do suf- 
ficient business to make it profitable were they 
limited to this in their transactions. What 
they use in lieu of capital, is confidence, and 
as long as they succeed in holding this, they 
can continue and prosper. The point desired 
to be made, is, that the capital ordinarily con- 
trolled by a dealer is not sufficient without he 
also has the confidence of the community. 
Therefore, when he suffers this to be lost by any 
unfortunate or questionable maneuver, his re- 
sources are crippled, and his chances must there- 
after be ranked doubtful. Capital and confi- 
dence are deserving of the motto: " United we 
stand, divided we fail." 

Of capital itself, one of the most important 
things to know, is how its owner came into pos- 
session of it. 



CAPITAL. 91 

(1) If, as a clerk, he lias been gaining 
experience and education, and by dint of econ- 
omy and frugal habits has accumulated a capi- 
tal with which he proposes to do business on 
his own account, every dollar of that man's 
capital has an enhanced value. In the first 
place, he has shown ability to earn, and frugal- 
ity to save, and having both earned and saved, 
he knows the value of money as no man can 
who has done neither. This man may be 
regarded as good for any reasonable business 
wants, and is entitled to our confidence. 

(2) If the money was inherited by a young 
man, or he in any way came into possession of it 
without effort on his own part, and he uses it to 
engage in business, it will then depend entirely 
on how much natural ability and experience he 
combines with his capital. Without an estab- 
lished reputation as to his business qualifica- 
tions, his capital would be all there is to base 
credit on; hence, we could only trust him with 
safety to the extent of his bank account. 
Acquiring the needful experience and education 
should always precede the employment of cap- 
ital, but where the education and experience 
are undertaken to be gained concurrently with 
the use of capital, there is always danger that 
the latter will be lost before the former is 
gained. 

(3) Cases that frequently come up are, 
where a young man without experience, and 



92 WHOM TO TRUST. 

with next to no ability, usually, is started by 
some well-to-do relative, father, mother, uncle, 
or aunt. There is said to be no end of money 
behind the young man, but, as experience 
proves, the end of the money is seldom very long 
in being reached. This class is not very difficult 
to handle for the credit -man. It is generally 
only a question of time when the aforesaid rela- 
tives become solicitous about the business and 
its success, and they must be secured, and it is 
usually understood in the beginning that they 
shall not lose by the venture, no matter who 
else loses. Of course, the general creditor 
"gets left." Experience teaches that credit 
must here be confined within very narrow 
limits. 

(4) To engage in mercantile pursuits, men do 
not have to go through a preparatory routine of 
study or of apprenticeship, like the professional 
man or the man with a trade. A man can not 
be a doctor to-day and a lawyer to-morrow, or 
a shoemaker one day and a tailor the next; but 
either of them can turn merchant at any time. 
Men leave professions, trades, farms, etc. , every 
day and enter into business regardless of pre- 
vious training, or go from one kind of business 
to another, as if to be a merchant was an in- 
born attribute of every man. 

To formulate a rule by which to pass judg- 
ment on this heterogeneous tribe, or rather this 
" job lot," would be impossible. Applications 



CAPITAL. 93 

for credit in these cases should be governed by 
the record of previous business connections and 
conduct, and that these are obtained is most 
essential. This will furnish valuable data for 
the credit-man, and may or may not, in his 
opinion, entitle the applicant to credit. But in 
the absence of any such data, the applicant's 
claim to credit can only be considered on the 
basis of his cash capital, and the future must 
establish his claim to increased confidence. 

The further consideration of capital will be 
taken up again under the head of ' ' Limit of 
Credit." 



94 WHOM TO TRUST. 



ASSETS: STOCK AND PERSONAL 
PROPERTY. 

We have reference here, of course, to that 
portion of the assets of an insolvent concern, 
which consists of merchantable wares or goods. 
The term merchandise is understood to mean 
articles of commerce in general demand, or 
wares that have ready sale. AVhen we have to 
do, therefore, with merchandise assets, to be 
closed out and converted into cash, we may 
generally and reasonably expect to realize some- 
where near the original cost price, provided 
that the goods were bought judiciously, and 
provided a market exists where disposition of 
them must be made. Ordinarily this class of 
assets is the most available to the creditor, and 
brings more nearly face value than any other, 
though even here the shrinkage is always con- 
siderable, not, however, from lack of represent- 
ative market value, but for reasons outside. 

An assignee's sale, according to the manner 
in which such sales are usually made and 
allowed to drag, always involves large expense 
for clerk hire, rent, and incidental items, 
besides legal services, etc. If closed out by 
piece-meal the expenses will be out of all pro- 
portion to the receipts, and the net proceeds 
will be equally impaired. If sold in a lump for 



assets: stock and personal property. 95 

cash, the buyer usually names his own terms, 
and in both instances the creditor fares about 
alike, only that the latter method is the best, 
because it is the quickest, by avoiding contin- 
gencies in allowing returns to be made to those 
interested. 

From this it will be seen that in case of 
liquidation by assignee's sale, even the most 
available portion of a bankrupt's assets will 
undergo considerable shrinkage before it is 
converted into cash and ready to divide, and 
that 35 per cent, loss on the appraised market 
value (leaving the creditors 65 per cent. ) is only 
a fair average discount. 

In calculating, then, the value of a dealer's 
stock in trade as part representative of his capi- 
tal, we are not warranted in estimating it at over 
65 per cent, on the purported inventory value, 
when a credit is in contemplation. In few 
cases will this figure be exceeded, and in many 
cases it will not be reached. In making cred- 
its, the possibility of a failure should always be 
borne in mind, and our estimates of property, 
to be safe, must be based on that contingency. 

In respect to manufacturing business, we 
must allow ourselves even greater latitude for 
shrinkage of assets. A large portion of the 
assets will necessarily be represented by stock 
in various stages of completion at all times, and 
which, consequently have no market value. In 
the event of failure, this class of assets could 



96 WHOM TO TRUST. 

only be converted at great sacrifice of material 
and labor expended thereon, and they possess 
really less commercial value than the raw 
material out of which they are made. We can 
give them only a nominal value. 

Next comes the stock of manufactured goods. 
The ready conversion of these into cash will 
depend on the nature of the goods. What they 
may bring in the open market and at forced 
sale, is governed by circumstances. If the prod- 
uct happens to be of a seasonable kind, then 
it must be sold in its season to realize the most, 
and if sale is forced out of season, the sacrifice 
will be proportionately large. The raw ma- 
terial, on the other hand, represents and com- 
mands more nearly market value, and can in 
nearly all cases be readily disposed of, even 
more so than the manufactured product itself. 

But the assets of a manufacturing concern 
that represent the least value at forced sale are 
those consisting of the plant, so-called; i. e., the 
machinery, tools, fixtures, patterns, etc. This 
class of property, if sold at any time, will bring- 
only second-hand prices, and if closed out by 
an assignee, only a small percentage of the 
original cost is realized. The creditors have 
little to hope for from this source in the way of 
addition to their dividend. What represents 
thousands of dollars, will scarcely realize as 
many hundreds. For this reason manufactur- 
ing concerns generally effect a settlement on 



assets: stock and personal property. 97 

their own terms. The creditors do not want to 
carry on the business; it can not be sold at 
anything near its actual- value, and so the 
owners are the most desirable parties to keep 
and continue to operate it on whatever reason- 
able terms they choose to name. They can, in 
fact, afford to pay more for it than outside 
parties. 

The assets of a merchant's stock in trade 
being worth about 65 per cent., that of a manu- 
facturer can not be estimated at more than 35 
per cent., if closed out for the benefit of the 
creditors; and in making credits we must dis- 
criminate, therefore, between the different 
branches of business, and duly consider the 
nature of the assets. 



98 WHOM TO TRUST, 



ASSETS : ACCOUNTS AND BILLS 
RECEIVABLE. 

It is anything but amusing to a creditor to 
read an assignee's report of the condition of a 
defunct concern, when that official states with 
cold-blooded disinterestedness, that of the 
$5,000 due the insolvent in accounts and notes, 
only about $1,000 is collectible. What a picnic 
the dead-beats in the bankrupt's locality must 
have had, and what a generous, accommodat- 
ing merchant he must have been! Generous 
man, surely — to all but himself and those who 
undertook to help him. And such instances 
are not rare, by any means. Far worse come 
under our notice repeatedly, and we resign our- 
selves with stolid indifference as to the out- 
come. 

Ordinarily, however, this class of assets will 
bring as much as merchandise, viz., about 65 
per cent. net. Accounts and notes do not cost 
as much to collect, as goods do to convert into 
cash. There is neither rent, clerk-hire, nor any 
of the other expenses incident to carrying and 
disposing of a stock of goods and personal 
property, and if the insolvent has used moder- 
ately good judgment, the shrinkage on their 
face value may be calculated not to exceed 35 
per cent. In the hands of the owner they 
would be worth considerably more, for the 



assets: accounts and bills eeceivable. yy 

reason that debtors of a bankrupt concern are 
never eager to pay, and in fact, will use every 
means to evade even just debts. The assignee's 
or receiver's task is, therefore, made difficult 
and expensive, and a large portion of the 
accounts is usually absorbed in legal fees and 
costs. 

It is safe to assume that men always engage 
in business where their capital can find employ- 
ment to its full extent. A man with $1,000 
capital generally undertakes to do a business 
where twice that sum would be needed, for 
comfort and ease. He calculates on the time 
he has to give; that is, bases his calculations 
on the terms nominally established in his trade. 
If the calculation is made to hold good, and he 
is firmly resolved to do his credit business 
without swerving from his purpose, he is all 
right. But very few have the nerve to do this, 
and fewer still appreciate the importance of 
limiting their credit-giving. 

The ignorance on this question is often seen in 
merchants, who seem to think that if they pay 
interest on past-due accounts, that they are 
fulfilling all the obligations as between debtor 
and creditor. No merchant can afford to loan 
any portion of his working capital for simple 
interest. In order to make it pay, he must turn 
his capital many times in a year. To loan 
it out at 6 per cent, means simply getting 
6 per cent, per annum. Let any merchant 



100 WHOM TO TRUST. 

undertake to pay all the expenses of doing 
business for a return of only 6 per cent, on 
his capital once a year, and he will very soon 
have no capital. And what holds good when 
taken on a large scale, holds equally good on a 
smaller. 

As to the importance of strict adherence to 
your terms, and insisting that they shall be 
lived up to on the part of your customers, the 
following simple illustration will suffice: If a 
merchant has a capital which enables him to 
give sixty days' time and still discount his 
bills, does it cut any figure or interfere with 
his discounting his bills, should he be com- 
pelled to give ninety days? Most certainly 
it would. He would have tied up additional 
capital, equal to thirty days' sales, which 
would not be available to him in time to dis- 
count his own bills any longer. The longer the 
time that is given or allowed to be taken, the 
greater will be the proportion of our capital 
made unavailable. Large and first-class houses 
understand this, and we have always found 
them demanding punctuality in the observance 
of terms. A firm doing a business of $1,000, 000 
per month, for instance, if it gives sixty days' 
time, means that $2,000,000 are owing it, and 
ninety days' would mean $3,000,000 outstand- 
ing. Of course, more or less of our sales are 
discounted, but this we anticipate in our cal- 
culations here as well as in practice. 



assets: accounts and bills receivable. 101 

Whether we undertake to discount our bills 
for cash or buy on time, it will be seen that our 
safety, comfort, and reputation for promptness, 
depend very much on the relative proportions 
of accounts and bills receivable to our capital. 
A man with $10 doing a C. 0. T>. business, can 
turn his capital every day in the year if buyers 
can be found. Making 10 per cent, profit on 
each turn, that $10 would earn over $300 per 
year, supposing that the daily profit was put 
aside. That same man, if he sold his $10 
worth of goods on six months' time, could only 
turn his capital twice a year, and he would 
make only twice 10 per cent, on $10. 

This treatise will not permit of additional 
argument on this subject, but we can not allow 
the opportunity to pass without calling special 
attention to its importance as a prominent 
factor in the science of credits. 

Giving indefinite time and carrying your cus- 
tomers as long as they desire, at interest, is 
being done successfully and profitably by 
merchants sometimes, and they are shrewd 
merchants. But they are men who have suffi- 
cient capital to carry on both mercantile and 
banking business, and can conduct the one con- 
jointly with, but independently of, the other. 
The merchant turns banker every three or six 
months, and gets his accounts secured and 
drawing good interest. He could use his bank- 
ing or surplus capital in no more profitable or 



102 WHOM TO TRUST. 

safer way. He furthermore ties these men to 
Mm, and as long as they owe him and he 
wants their patronage, he need not fear com- 
petition. 

But this class of merchants are the exception. 
The great mass we have do with lack the capital, 
and some also the brains, to do one business 
comfortably and as it should be done. 



BEAL ESTATE — EXEMPTIONS. 103 



REAL ESTATE— EXEMPTIONS. 

Real estate and permanent improvements 
should offer the very best basis for credit, and 
they do, when clear and nnincnmbered. But 
very few merchants, comparatively, hold prop- 
erty in fee simple. There is nearly always an 
incumbrance on it, large or small, but always 
large enough to make the property unavailable 
for the general creditor in case of insolvency. 
Even when the property is scheduled as clear 
at a given time, the owner usually raises money 
on it before an assignment is made, sometimes 
with the expectation of tiding over, and some- 
times to save it from the wreck; but as cred- 
itors are not inclined to advance more money 
in order to control the debtor's equity, the 
result is that whatever sum that equity may 
represent, it is seldom convertible or available 
as an asset for the benefit of the creditors. 

There is this good feature with real estate, 
however, as part of the representative capital: 
It can not be transferred without giving imme- 
diate notice to the public. The records, as are 
those of the chattel mortgage, are closely 
watched by the mercantile agency reporters for 
the benefit of creditors, and whether conveyed 
for legitimate or fraudulent purposes, the 
community is, in either case, advised of the 
fact. 



104 WHOM TO TKUST. 

A homestead is exempt. The Homestead law 
in various States places different limits on the 
value that may be claimed as exempt, but there 
is a wide latitude allowed usually in the 
appraisal, and practically the creditor' s equity 
in it is never tangible. The value, whatever it 
may be, can not, therefore, be considered as 
part of the working and available capital of the 
business. It adds to a man's credit in this, 
that it makes him more of a fixture, and enables 
him to live more economically to the extent 
that he saves paying rent. 

In new States and Territories the laws are 
particularly favorable to the people in them, 
and the exemptions warrantable under the 
statutes give the debtor class all the advantage. 
For the creditor there exists no legal jurisdic- 
tion, and practically he is more dependent on 
the honor and honesty of his customers than 
he is on the exercise of any legal rights that he 
ought justly be allowed to claim; but notwith- 
standing this fact, and in spite of the insecurity, 
so far as a property basis is concerned, credit 
to those localities does not seem to suffer 
material restriction. 

The credit-man is sometimes misled by the 
scheduling, on the part of his customer, of 
store-building as part of his capital, when in 
fact it is used conjointly for business and 
dwelling purposes, which brings it under the 
head of exemptions and the Homestead law. 



KEAL ESTATE — EXEMPTIONS. 105 

These points are important, and a thorough, 
knowledge of the nature of the property, either 
real or personal, is indispensable in order to 
reasonably insure our safety as creditors. 

The business code of fifty years ago required 
of a debtor, who made any pretense to honesty 
and honorable conduct, that he turn over every 
dollar's worth of property, without reference 
to legal exemptions whatever, in liquidation 
of his debts. A man was considered dishonest 
who kept back anything whatsoever; but this 
code has given place to a more modern and 
extenuating one. The unfortunate' s family is 
considered to be entitled to a home, if one is 
owned, and the commercial ethics of the pres- 
ent day sanction its exemption as a debt-paying 
factor. The family, in particular, is a gainer 
by the operation of these ethics, and society at 
large is relieved of a possible burden. From 
the standpoint of commercial ethics of the 
present time, the bankrupt is accorded not only 
a legal, but a moral, right to provide a home 
for his wife and children and keep them in the 
enjoyment of it, and the sentiment, while it 
may be abused frequently, is both charitable 
and humane, and in harmony and accord with 
our sense of national and individual independ- 
ence. 



106 WHOM TO TEUST. 



LIABILITIES. 

ACCOUNTS AND BILLS PAYABLE IN PROPOR- 
TION TO CAPITAL. 

Things must always bear relative propor- 
tions to each other to insure safety of the 
whole. This holds as good in carrying on and 
building up a business, as in the construction 
of a house. In the chapter on the "Limit of 
Credit," on page 171, we have discussed the 
question of how much a business can safely 
owe in proportion to its assets, from the stand- 
point of the creditor. To suppose a case of a 
merchant whose liabilities are equal to his 
assets, is practically admitting a clear case of 
insolvency into our argument, and a case with- 
out capital. This is a hopeless case, but such 
cases are not nearly as rare as they might be, 
and sometimes they even enjoy good credit and 
unbounded confidence. But there is always an 
end. The staving-off process works for a 
while, and accommodating creditors remain 
patient beyond the limits of prudence. At 
last, when endurance has ceased to be a virtue, 
and the debt must be paid, and neither exten- 
sion of time nor further credit for goods can be 
obtained, the culminating point is reached, and 
we are glad to take, in a case of this kind, 50 
cents on the dollar, and call ourselves lucky at 
that. In fact, 50 cents is quite a princely offer. 



LIABILITIES. 107 

Liabilities have the faculty of growing day 
and night without our aid, while the assets of 
a debtor who is hard up and behind, acquire 
just the reverse attribute. Instead of growing 
in value, they diminish from day to day. The 
reason of this is obvious. 

The man who keeps his liabilities within 
proper limits; i. e., within the limits of abso- 
lute safety to his own business, enjoys advan- 
tages, by reason of his good standing, which he 
can always turn to profit. To the man, on the 
other hand, who is too much in debt already, 
no one has any bargains to offer. He pays 
outside prices for everything, and his com- 
petitors get the bargains. The distance 
between him and his more fortunate neighbors 
is constantly widened, and their relative condi- 
tions may be seen in the prosperity of the one, 
and the growing distress of the other. 

The man whose liabilities are out of propor- 
tion to his capital and business, and who is 
therefore constantly harassed to meet them, 
also suffers injury from more remote causes 
than from loss of confidence and credit. The 
constant worry attendant upon this condition, 
the efforts made to turn a corner here and 
there, the figuring and conniving required to 
pull through, all these things engage his mind 
and time, and withdraw his labor from its 
legitimate functions. A certain portion of 
services that a business-man has to perform 



108 WHOM TO TRUST. 

are an expense or a loss; i. e., they are not pro- 
ductive. The salesman renders productive 
service, while that of the man employed to 
collect the bills is not productive. This 
belongs to the item of expense. If the bill 
had been paid in cash when the sale was 
made, no collector would have been neces- 
sary. Every time you send a man out to 
collect, it costs something, and whatever time 
is devoted, in a business way, to yesterday's 
transactions, is lost. If you made $1,000 last 
week on the sale of goods, it will never be 
more, and you can never make it more by any 
method of figuring; the more time you spend, 
and the more assistance you require to get pos- 
session of it, the less you will eventually 
realize. Now, the man who is in financial dis- 
tress, per force, wastes a large portion of his 
time in unproductive efforts, although they 
may enable him to turn one more corner. But 
in no sense can it be contended that he has made 
or earned anything or added to his capital. 

It is surprising with what rare persistence 
men hold on long after their condition is past 
hope. Micawber like, they are always waiting 
for something to turn up to help them out of 
their difficulties. When the collapse finally 
comes, as come it must, all are agreed that it 
would have been much better if it had come 
sooner. The creditor has lost money by the 
delay, and the debtor has lost time. 



LIABILITIES. 109 

No definite rule can be laid down to govern 
the proper proportion of liabilities to assets 
and capital. We might approximate to this in 
some one line of business, but we are here con- 
cerned with business in general, including all 
branches. All we can say is this: Keep the 
mastership of your business in your own hands, 
and this you can do by keeping your indebted- 
ness" and your engagements within the limits 
of your positive ability to meet. The man who 
does this, merits and is entitled to our confi- 
dence; the man who does not, justly lays him- 
self open to suspicion of jeopardizing, not alone 
his own capital, but ours as well. 



110 WHOM TO TRUST. 



VOLUME OF BUSINESS IN PROPOR- 
TION TO CAPITAL. 

This question we can discuss only in a gen- 
eral way, and the considerations will be such as 
past experience and observation lead us to take 
cognizance of. No fault can be found with us, 
as a mercantile community, on the score of not 
doing business enough on the amount of our 
capital. The fault is rather that we attempt 
too much. 

The function of money is to facilitate 
exchanges of our produce, and that a dollar in 
the hands of our business people is made to 
perform that function to its utmost capacity, 
we have no reason to question. Rust or moth 
does not get into our dollars or our capital, for 
it does not remain long enough in one place to 
become settled, and this is all very well as long 
as the dollar is kept moving and no unusual 
conditions arise. In that case, the person pay- 
ing it out, and the party receiving it, each, in 
turn, is benefited. If nothing ever occurred 
to check the circulation of money at some 
given i;>oint, then we might rightfully claim 
that that method subserved the highest pur- 
pose which gives it the largest use in effecting 
exchanges, either for past or present trans- 
actions. Exchanges are made, i. e., goods are 
bought and sold on the basis that there is to be 



BUSINESS IN PROPORTION TO CAPITAL. Ill 

profit in the operations; therefore, the more 
transactions or trades that a dollar enables us to 
make, the more productive it becomes, and the 
greater the number of people that are bene- 
fited. But we find by experience, that when 
money reaches the point where the maximum 
number of operations are effected with it, and 
when exchanges are made with the greatest 
facility, and apparently with the least friction, 
which condition is indicative of universal and 
unlimited confidence in each other s ability to 
perform them, invariably a halt may be looked 
for which will shake our commercial structure 
and all our calculations to its very center. 
This is the panic. Every man who has passed 
through one or more commercial crises in this 
or other countries, if he has been at all observ- 
ant, has noticed that financial distress to a 
community is always foreshadowed by excess- 
ive confidence, and an abnormal tendency to 
speculation. The limit of the purchasing 
power of a dollar is exceeded and ignored, and 
"promises to pay" take its place largely; and 
along the whole line each depends on the other 
for the fulfillment of promises, without any 
really tangible basis. They are notes without 
security, and the maker pays them if lie can. 

In the nature of things, in the buoyancy of 
our spirits and the sanguineness of onr make-up 
as a business people, even the more conserva- 
tive element loses its equilibrium during 



112 WHOM TO TKUST. 

periods of apparently universal prosperity and 
confidence, to wake up at last and see the bub- 
ble burst, as burst it must, from its own over- 
inflation. The greed for gain is too strong 
to be resisted, and even our personal experi- 
ences do not seem to profit us. Inflexible laws 
govern our commercial transactions, as all else, 
and we should not be unmindful of indications 
or ignore the timely warnings that are always 
given and followed by the wary. 

Whether a policy of safety and conservatism 
is the most profitable in the long run or not, is 
demonstrable by facts, and we can find our 
proofs by pointing to houses which have pur- 
sued this policy, and to the wrecks that are 
strewn all along the shore by following the 
'Opposite course. This is a practical test, and 
we need no better. 

Panics do not come and go with the regu- 
larity of the moon's phases; but they come, 
nevertheless, in cycles, and there is a perio- 
dicity about them which the world is prone to 
overlook. The same, or similar, causes that led 
to the panic of 1857 and subsequent panics, 
will cause others, and the great majority of us 
will be caught in them, as if the records of pre- 
ceding disasters had been completely destroyed. 

The deductions we w r ould make are based on 
the experience behind us and the probabilities 
before us. The former enables us, as wise busi- 
ness-men, to establish a scientific basis by 



BUSINESS IN" PROPORTION TO CAPITAL. 113 

which to govern our actions with reference to 
the probabilities in the future. Conditions, 
relations, and confidences must be looked at in 
the light of cause and effect, and the good busi- 
ness-man anticipates the effect long before it is 
produced. There is science in business, not- 
withstanding that this fact has not dawned 
upon the multitude. A hap-hazard method is 
always conditioned upon the whims of chance, 
and success is not its legitimate offering. 

What amount of business a man can safely 
do with a given capital would be as difficult to 
determine, in an abstract way, as to determine 
the chances of success of a new enterprise with- 
out a knowledge of the necessary facts and 
surrounding conditions. We know, as experi- 
enced credit-men, that when a concern does so 
much business that it can not pay its bills 
promptly, it is not safe to extend credit to it. 
Over-buying, over-trading, and not the least, 
over -trusting, are the greatest evils we have to 
contend with. The only rule that can be laid 
down to guide us safely, is to do all the busi- 
ness we can, but stop short of the point where 
the 'fulfillment of our promises is dependent 
upon the strict observance of the promises of 
others to us. 

In other words, we must keep ourselves in 
condition to meet our obligations, whether 
others meet theirs or not. A merchant is not 
compelled, by this rule, to have the cash in 



114 WH03I TO TRUST. 

bank at all times for all his debts. That is 
not necessary. A certain percentage of ac- 
counts and assets can always be relied on and 
realized from. The liabilities should be kept 
within the limit of this percentage, leaving the 
balance as a surplus, or as the representative 
of capital invested. 



ANTECEDENTS. 115 



ANTECEDENTS. 



A man' s antecedents are found in his written 
and unwritten biography. Like a barometer, 
they unerringly indicate and give ns an idea of 
his character, ability, honesty; his good and 
bad traits, and summing up, we are in posses- 
sion of valuable data for judging his future, and 
our chances, if thrown with him. 

Because a man has once failed in business is 
nothing in itself, in this country, at least. A 
man may come out of a wreck an honest, capa- 
ble, and very often a better, man, by reason of 
his experience. Force of circumstances, joined 
to a little inexperience and imprudence, may 
have resulted in his bankruptcy; but in a case 
of this kind, where the integrity of the party 
has been kept inviolate, the business commun- 
ity is ever ready to overlook past mistakes, 
and bestow upon him its confidence in the 
future. But the case must be a clear one, and 
his integrity must stand out uncompromisingly; 
it must be " net, and no discount." Where 
such are the facts, reasonable hope of eventual 
recovery may be rightfully entertained, and 
our support be extended. 

On the other hand, where the failure is the 
result of gross violation of business principles 
and honesty, as is often the case, the bankrupt 
should forever forfeit all claims on the confi- 



11 G WHOM TO TRUST. 

dence of the community, and were this more 
universally adhered to, a wholesome influence 
would be exerted on all classes. 

Inexperience being largely the cause of many 
men's downfall in early life, there being no 
other blemish on their characters, the business 
world is always ready to forgive and help them 
again. Our charitableness toward the honest 
unfortunate is a grand feature in our modern 
mercantile life, and although it is actuated by 
policy and self-interest, that need not detract 
from its merits. A broad Christian sentiment 
underlies it withal. 

There is a tendency to make light of failures 
by both the creditor and the bankrupt. The 
bankrupt thinks he will do better in the future, 
and, profiting by experience, will soon be 
enabled to get on his feet again — better than 
ever. But he counts without his host. Except- 
ing the out-and-out thief, men are not benefited 
by their own failures. Although the debtor 
finds, usually, no difficulty in compromising 
with his creditors on a reasonable basis, such as 
the assets warrant, thus enabling him to con- 
tinue his business; yet, of the majority it may 
be said, that their entire future is blighted, and 
that they never recover. 

To a few, failure gives additional zest, and it 
would seem that it was the key to subsequent 
brilliant success, but we think the failure 
might have been omitted without peril to their 



ANTECEDENTS. 117 

final outcome. Failure always means a set- 
back and loss of time, also loss of confidence, 
and the latter can only be regained in the 
course of time. Going along safely and 
cautiously, though somewhat slower, and 
avoiding failure, is assuredly the shortest road, 
after all, to success, and the attainment of our 
desires. 

The time allotted to a man in business for 
permanently establishing himself, and gaining 
an undisputed foothold, is limited to but few 
years — thirty, at most, and this does not admit 
of many or any serious drawbacks. The time 
is too short, and most men find it so. 

We like to see men ambitious and energetic. 
These are characteristics of our people. We 
make haste to get rich; but whether our undue 
haste does not lay waste a large portion of our 
efforts, and result in irretrievable loss of time, 
is a matter for serious consideration. Less 
haste to accomplish our purposes as business- 
men, more conservatism and caution, would 
certainly advance the interest of trade and 
traders at large. 

The applicant for credit favors, if he has ever 
failed, or whatever his past life may have been, 
has left a biography of himself that must be 
carefully read. All the facts will be enumer- 
ated therein, and will indicate to the credit-man 
the course he should pursue. 



118 WHOM TO TRUST. 



COMPETITION. 



With the growth of population in every di- 
rection, east, west, north, and south, opportuni- 
ties are opened up for business ventures, and as 
fast as a town or village is located, two stores 
are ready to start where only one is really 
needed. We are accumulating capital very 
fast, and there is no nook or corner anywhere, 
in the remotest part of this continent, that does 
not exert a magnetic influence on capital the 
moment a chance for its employment is offered. 
There is no enterprise so large that it can not 
be capitalized, or so small that it does not 
attract men to it with the hope of making a 
living. 

The man with energy, experience, and a little 
capital, who drives his stakes first in any new 
town — the so-called pioneer — has considerable 
advantage, and his prestige makes it more diffi- 
cult for others to get a foothold. 

Every new town is always going to be tlie 
town, and in the expectation that it will out- 
strip every other, more stores are generally 
started than can find profitable remuneration. 
Of course, the law of supply and demand regu- 
lates this in due course of time, and only the 
fittest survive. 

Competition is necessary, not for the seller, 
but for the buyers, and as the buyers constitute 



COMPETITION. 119 

by far the larger class, we must look for the 
greatest good to the greatest number. It pre- 
vents robbery, and every merchant would be a 
licensed robber of the people if he could, and if 
competition did not prevent him. 

In regard to selling goods and what profit a 
dealer should be allowed to make, or be entitled 
to, there is no established rule or uniformity of 
practice. Every man is a law unto himself, 
and is governed solely by circumstances. His 
aim is to make all he can, and as quickly as he 
can, legitimately, of course. But this only 
means that he will sell at a 1 per cent, profit if he 
is forced to. Left to his own sense of right and 
justice, 100 or 300 percent, would only be a fair 
remuneration for his time, employment of his 
capital, and sacrifice he is making for the ac- 
commodation of the public. What gas and 
sugar trusts and other monopolies aim to ac- 
complish by their manipulations, is to remove 
comx)etition. This done, and they have it in 
their power to exact any price and profit within 
the ability of the people to pay. Every dealer, 
retail or wholelsale, would constitute himself 
into a perpetual trust, if he could, and he does 
so when and wherever he has the field to himself. 

Much can be said on the good and bad side 
of competition; the preponderance of the argu- 
ment, however, rests on the side of its good 
offices in behalf of the many. But what con- 
cerns us here, chiefly, is its effect on our cus- 



120 WHOM TO TEUST. 

tomer, and how far his chance for success is 
thereby lessened . As for improving his chances, 
that could hardly ever be possible, though in 
common parlance we say, competition is the life 
of trade. While this is so, it does not mean 
that competition enables you to charge more 
profit. Quite the reverse. It makes you give 
more goods and better service, and the public 
at large is the gainer by the stimulus that com- 
petition gives to trade, and the greater the com- 
petition is the nearer to cost will you be obliged 
to sell. The question, therefore, has much to 
do with the man or firm we have trusted, or are 
about to trust, with our goods. Without oppo- 
sition, our debtor's chance of success could 
hardly be questioned, and the creditor, other 
things not being unfavorable, would be justified 
in considering the risk a good one. On the 
other hand, if in his locality the business is 
overdone, and the custom is hardly sufficient to 
warrant so many dealers, it then becomes a 
question, with the creditor, of comparative 
ability, financial and otherwise, of the appli- 
cant for credit. 

It will appear, then, that a man' s surround- 
ings, and their bearing on his prospects, must 
be taken into consideration. For a new firm 
to start into business in opposition to old, estab- 
lished houses, is always, more or less, a hazard- 
ous undertaking; but the risk is not confined 
to the firm alone, since the creditors are 



COMPETITION. 121 

always made participants in it, and this fact 
must be borne in mind. It is not an easy mat- 
ter to establish a paying business in the face of 
old and well-known concerns; nor will the lat- 
ter sit calmly by and let the new-comer get a 
foothold. His success will depend on his finan- 
cial and general ability, as compared with that 
of his competitors. 

We are made to feel reasonably secure, how- 
ever, in a new firm that has bought out and 
succeeds an old-established stand. We know, 
in this case, that the trade is already built up, 
and that under a fairly good administration it 
will continue to run in the same groove. A new 
firm has to create confidence first before a line of 
customers can be depended on, but the success- 
ors to an old house start in with a lucrative 
patronage to begin with. They get the benefit 
of years of advertising and of acquaintance; in 
short, they start with a prestige that would 
otherwise take years to acquire. 

All these points are of vital importance to 
him who is about to extend credit. The pro- 
fessional manager of credits gives them careful 
consideration. Every item of advantage and 
disadvantage that the applicant for credit pre- 
sents must be carefully weighed, and if the 
balances do not show in his favor, it is not 
alone your privilege but your duty, as a good 
business-man, to decline the proffered favor. 



122 WHOM TO TRUST. 



PUNCTUALITY. 

Punctuality is the essence of good business 
methods. It is the foundation wall on which 
great structures are built. It is the highway 
to success in life, whatever may be the occupa- 
tion. Head over the lives of successful mer- 
chants, and of men in every department, and 
we shall find this trait invariably possessed by 
them and forcefully demonstrated. The man 
of business owes it not alone to others that he 
be punctual in his engagements and in the per- 
formance of his duties, but also to himself; he 
not alone puts others to inconvenience and loss 
by his lack of promptness, but he impairs his 
own chances of success. No great merchant, 
and we might say, no truly great man, was ever 
known to be without this quality of punctual- 
ity in a marked degree, and who did not prac- 
tice and value it as a cardinal virtue. 

In the matter with which we have to do, viz., 
credits, it is an all-important factor, and proba- 
bly there is no other that exerts so great an 
influence on the affairs of commerce, in which 
we are all, directly or indirectly, interested. 
If every man doing business had in him the 
elements of promptness, of punctual observ- 
ance of his promises, whether it be to pay a 
bill or fulfill a contract, much of our tribulation 
and distress, and most of our failures, would be 



PUNCTUALITY. 123 

avoided. The man who has an inherent sense 
and desire to be prompt, or who has made 
punctuality a maxim for himself in the conduct 
of his affairs, will make a halt when he finds 
that adherence to his principles is no longer 
possible. He rightly and prudentially con- 
cludes that the business had better be aban- 
doned or reconstructed on a different basis. 
A. T. Stewart adopted the C. 0. D. plan in his 
early career as a retail dry-goods merchant, as 
a result of lack of punctuality on the part of 
his customers. Having a note to pay one day, 
he depended, as we all do, and as a legitimate 
resource, on promises of those indebted to him. 
But these promises were not kept, and Mr. 
Stewart was obliged to sacrifice part of his stock 
to realize money in time to meet his note. He 
wisely concluded that where so much uncer- 
tainty and unreliability existed, it was necessary 
to adopt some other method of conducting his 
business, to avoid periodical distress — and he 
did. Every good business-man looks upon 
lack of punctuality in himself as synonymous 
with loss of personal integrity, and this governs 
equally in large and small matters. The man 
who is remiss in the minor transactions is not 
to be relied on in large ones, although policy 
and self-interest may prompt him to the punc- 
tual fulfillment of the latter. 

The man who is not prompt can not be said 
to be strictly honest. If you sell a man goods 



124 WHOM TO TRUST. 

on sixty days' time, you calculate on receiving 
payment at maturity of the account, and you 
have a right to expect and demand it. His 
failure to keep his promise is liable to cause 
your failure to keep yours. Being " behind 
time," is often as ruinous to the creditor as 
being made the victim of bare-faced fraud. 

We respect the man, and we have a high 
appreciation of his business tact, who is always 
prompt in his dealings and his payments with 
us, and it is an appreciation which more 
should strive to merit. But a large number 
of people in business seem not to have any 
conception of this great requisite. They were 
born "behind time," presumably, and will 
always be "behind time," even in making their 
exit. 

We all have on our .books customers who 
have always been ' ' slow pay, ' ' and who are not 
likely to ever mend their ways. It is a chronic 
disease with them, a congenital deformity, as 
doctors would say, but in ordinary parlance, 
" pure cussedness" is more to the point. The 
community seems to know their failing, and 
indulges them, very much to its own detriment 
and that of good business rules. It is fully as 
reprehensible to be lax in exacting promptitude 
as it is to be lax in its practice yourself. The 
large, representative houses have it in their 
power to do much educational work and to 
exert a potent influence on the business-men 



PUNCTUALITY. 125 

of the country in the direction of instilling 
good principles into their methods, by simply 
demanding and insisting on punctual compli- 
ance with terms and engagements. Some few 
of our larger firms have done more in this way, 
in educating the business public than have all 
other influences combined, and they rightfully 
pride themselves, and are entitled to credit, as 
educators and public benefactors. Discipline 
of this kind naturally results in mutual benefit, 
and in the private as well as the public good. 

In making credits, the applicant's reputation 
for promptness should be carefully inquired 
into. Considerable latitude is permissible and 
is warrantable even by the most conservative 
houses. All other conditions being favora- 
ble, and we find the applicant is simply slow 
because "he is built that way," we need not 
refuse him. We can make him prompt with 
us if we set out to do it, and do it we should, 
by all means. 

On the other hand, the applicant whose record 
shows unsatisfactory payments, and who has 
no established reputation either for ' ' chronic 
slowness" or financial standing, must be closely 
scrutinized, and we must take the benefit of 
existing doubts ourselves. 

In the case of customers already on our books, 
this may be said: We take for granted that the 
course of business is onward and upward — not 
backward. No man ever failed from the ordi- 



126 WHOM TO TRUST. 

nary causes who did not give timely warning 
by hoisting the signal of distress long before 
the event. When a customer, therefore, who 
has always been punctual in his engagements, 
goes back on his good record, there is generally 
cause for alarm, and a prompt investigation is in 
order. 



PRODUCTIVE OR NON-PRODUCTIVE. 127 



PRODUCTIVE OR NON-PRODUCTIVE. 

By this is meant whether the principals of a 
business are themselves workers, and are earn- 
ing their daily wages. If the proprietor be a 
hard-working man himself, and an equivalent 
is rendered to the business in services for money 
drawn for living expenses, the conditions may 
be regarded as favorable in this case. But if 
the reverse is true, and the proprietor figures 
that the business owes him a living without any 
equivalent being rendered by him, thus neces- 
sitating the employment of help and the paying 
of wages, then the conditions must be regarded 
as unfavorable. Few concerns can thrive under 
this latter method for reasons even outside of 
the wages paid, which the proprietor ought to 
earn himself. Take a small store, for instance, 
carried on by man and wife assisting each 
other, as we often find the case, and they uni- 
formly succeed in their way. They both earn 
wages, and their combined earnings are more 
than their personal expenses. What would 
otherwise be paid out in salaries, and be a drain 
on the business, is made a source of accumula- 
tion to their capital. Husband and wife who 
thus work together, can safely be trusted, since 
we may rely on economical management and 
frugal habits. The ambition that prompts 
them in uniting their industry, also gives 



128 WHOM TO TRUST. 

assurance of their eagerness to save and accum- 
ulate. 

If a man has a trade at which he can work in 
conjunction with a merchandising business, his 
chances may be considered at a premium. As 
a matter of fact, a good tinner, starting a tin- 
shop and hardware store combined, is a good 
risk if he only has a set of tools to commence 
with, and as a matter of course, has good char- 
acter and habits. He can always earn -good 
wages at the bench, and does not have to 
depend on the mercantile part of the business 
for his living expenses. The same holds good 
in any line where the proprietor works at his 
trade in such connection. 

On the other hand, a man in business who 
neither earns wages as workman or as salesman, 
is out of pocket the wages he pays an employe 
for taking his place, and this single item, in the 
course of a few years, amounts to a considera- 
ble sum in itself. Nor is this all. The man 
who is industrious and keeps himself constantly 
employed in his business, necessarily keeps it 
in better running order. He also requires less 
for his personal wants than the man who takes 
his leisure; and again, by giving close attention 
to his business, fewer opportunities are afforded 
for squandering money in the various ways 
that beset the idle man. The difference in the 
personal expenditures between the two types 
of men will naturally be considerable, and the 



PRODUCTIVE OR NON-PRODUCTIVE. 129 

annual savings of the one over the other, added 
to his capital, will bring about a vast change in 
their relative financial conditions in the course 
of a few years. 

The importance of these points is not always 
considered, but should be. The careful credit- 
man does not ignore them. 



130 WHOM TO TRUST. 



DOING BUSINESS AS AGENTS. 

The class of persons we refer to are those 
who act as agents only in name, and not in fact. 
In it are included mainly such persons as have 
failed in business, and who have not been able 
to get a discharge or release from their indebt- 
edness, which still hangs over them. To enable 
them to do business without the interference of 
old creditors, they resort to a legal technicality, 
and pretend to do it for someone else, and 
either use some other name, or their own as 
agent. This class is quite large. In many 
cases the business is done in the wife' s name, 
the husband being nominally hired to manage 
it for her. 

There are cases where this course is probably 
justifiable, all things considered, and where cir- 
cumstances make it necessary, as a measure of 
self -protection; but these cases are rare, and the 
motives or reasons are easily ascertained. Gen- 
erally the measure is resorted to to keep from 
creditors their honest belongings, and to keep 
property and earnings out of the law' s reach. 
With these facts before us, which furnish us a 
record of the man' s character, we start in fore- 
warned, and our confidence is not likely to suf- 
fer abuse for the reason that we give it very 
charily. In many cases some friend or well-to- 
do relative is willing to help the man by allow- 



DOING BUSINESS AS AGENTS. 131 

ing him to do business in His name, and repre- 
senting him as his agent. The friend or rela- 
tive in this instance assumes the sponsorship of 
the concern, and with his name also lends his 
property; that is to say, he makes himself 
responsible for the acts and debts of the 
agent. The agents individual responsibil- 
ity, character, etc., whatever these may be, 
concern us only indirectly. We are con- 
cerned entirely with the responsibility and 
integrity of the principal, who is usually a 
man of means and of trustworthy character. 
We may state it as a fact that losses are seldom 
sustained from this source, and the reasons are 
quite obvious. The help being extended out of 
friendship or kinship, and very often without 
expectation of sharing in the profits, the 
arrangement is one of friendly aid simply, and 
few men would so abuse the confidence of such 
friends as to involve them in losses on their 
account. It may be further assumed that 
the agent is placed under certain restrictions in 
the control of his business, so that the princi- 
pal feels protected, and also that the agent con- 
fines his transactions within the limits of abso- 
lute safety. 

In determining this class of credits, we act 
cautiously at the outset, because, so far as the 
agent is concerned, we should not extend credit 
at all, and in looking up the principal, we are 
naturally painstaking in our inquiries regarding 



132 WHOM TO TRUST. 

his standing, and this precaution is apt to lead 
us to safe conclusions in regard to the extent of 
the applicant' s claim to our confidence. 

But there is another phase of this agency 
business, and one requiring much greater care 
on the part of the credit-man. It is where the 
man does business in his wife' s name. In most 
cases, the man has failed, and fraudulently con- 
veyed his property and assets to his wife. 
Practically, he has control of the property, and 
manages the business as before, using his wife's 
name as a figure-head only. The logical con- 
clusion in regard to this stamp of individuals is 
that the acquisition of property by any means, 
and the comfort of their families, at all hazards, 
is the chief aim before them, and they do not 
scruple to attain these results, even at the loss 
of character and name. But what he has 
secured is only a nest-egg, and you will find 
him very cautious how he ventures any of his 
capital or property. He must do business to 
support the family, and in order to keep intact 
what he has; but he does a safe business, per 
force, as sellers are not eager to give accomoda- 
tions. 

Where the wife is the figure-head of a con- 
cern, for the reasons stated above, and where 
our safety as creditors depends on her, the 
nature of the risk must be considered apart 
from the ordinary way. She has property in 
her possession subject to execution, and we are 



DOING BUSINESS AS AGENTS. 133 

safe so far as this goes, and our claims are cov- 
ered by it. But in case of her failure, our 
chances would be worth nothing beyond what 
could be realized from property in sight. A 
judgment would be a dead letter against her, as 
she would never again enter the arena of busi- 
ness life. She would drop out and be lost to 
creditors for all time. With a man, on the 
other hand, under ordinarily favorable circum- 
stances, the creditor is offered a future, and 
may reasonably calculate that a certain per- 
centage of his bankrupt debtors will eventually 
be good for something. Experience proves that 
worthless claims of to-day against young and 
middle-aged men of average business capacity, 
have a prospective value, which can not be said 
of women under above circumstances. 

Ordinary prudence will suggest our being 
cautious in extending them credit. We must 
keep considerably inside of the prescribed 
limit. 



134 WHOM %0 TRUST. 



PARTNERSHIPS. 



Many a good man has f onnd out to his sor- 
row #Lat partnerships are many-sided, and not 
all they might be. In union there is strength; 
but the union must exist in fact, as well as in 
name. A simple yoking together of two or 
more forces does not always have the desired 
effect, and in partnerships, the forces can never 
be measured beforehand in their relation to 
each other. It is always a matter of experi- 
ment first, and only experience and time can 
determine the wisdom or in judiciousness of a 
copartnership. 

Union, or partnership, in this case, to fulfill 
its highest mission, must mean harmony, 
mutual confidence, and unity of interests and 
joint effort for a given purpose. Its very 
essence and vitality rest in concert of action, 
and, wanting in this, the combination must, of 
necessity, be a failure. 

In a large enterprise, partnerships of two or 
more, when made for the "purpose of combining 
capital and joining forces, each partner being 
qualified for a special task or department, are 
for the good of all concerned, and the great 
success of many of our large houses is due to 
fortunate partnership associations. I say fort- 
unate, because whether partners are going to 
be congenial, and hr every respect well-mated 



PARTNERSHIPS. 135 

and of benefit to each other and the business, 
is always a matter that defies pre-judgment. 
Time alone can solve that problem. In smaller 
copartnerships the experiment is even more 
hazardous. There is greater reason for part- 
ners to clash. The work can not be divided so 
as to give to each a particular department to 
attend to, and one or both are liable to be dissat- 
isfied, though notwithstanding their disagree- 
ments, they may continue together indefinitely. 
That this kind of an alliance can not accom- 
plish what with perfert concert of action it 
would be capable of, is self-evident, and that 
there are a great many such, needs no affirma- 
tion. 

There are always risks in forming partner- 
ships. In selecting any two men, we could 
hardly hope to find both equally honest, 
equally competent, or equally energetic. 
Though truth will prevail and honesty is the 
best policy, nothing prevails as against an un- 
scrupulous partner. The honest man stands 
no show in such an unequal union, as many 
good men have discovered. 

Partnerships concern us here, however, in 
a more specific manner. In extending credit 
to partnership concerns, our attention should be 
directed to whether the association is a good 
one, all things considered, and whether the 
purpose for which partnerships should be 
formed has been fulfilled; also, whether all the 



136 WHOM TO TRUST. 

parties are producers; i. e., workers, and earn- 
ing wages, or whether they are simply con- 
sumers. 

The next question of importance is to ascer- 
tain whether the business is sufficiently large 
to warrant the family and personal expenses of 
two or more partners. A great many of the 
smaller partnership-firms suffer too large 
and constant a drain on their earnings for 
family support, thus leaving no chance for ac- 
cumulation of capital or enlargement of the 
business. Under these adverse circumstances, 
concerns can not get ahead, and more than that, 
it is evident that the ordinary vicissitudes in 
trade and temporary depressions are liable to 
cause both the firm's small capital and also the 
creditor's money to be eaten up while waiting 
for a turn. The earnings being consumed as fast 
as made during favorable periods, there is never 
a surplus fund to draw against. The establish- 
ment of a successful business demands constant 
accumulation of capital and facility for growth. 
The nature of business is to be progressive and 
aggressive. When firms stand still, it is 
because they can] t do otherwise, for one reason 
or another, and this condition can not be con- 
sidered a healthy one. 

Every man, employer and employe alike, 
must earn what he draws, and give an equiva- 
lent for what the business pays him. A clerk 
is paid a salary which he is supposed to earn; 



PARTNERSHIPS. 137 

the employer must likewise earn what he 
draws, though he is not expected to draw all 
the business earns; in fact, his success in busi- 
ness demands that he draw as little as he can, 
so as to admit of the largest possible addition 
to his capital from year to year. 

Forming a copartnership is one of the most 
important steps in a man' s life. I am talking 
now of the honest, right-minded man. The 
scoundrel, who is ever ready to inveigle anybody 
and everybody into his spider' s web, is never the 
one to suffer, even if he has anything at stake. 
The honest partner, to avoid compromising his 
honor and his name, is always the loser. 
Years of toil and accumulation of capital are 
sacrificed, and the sooner this is done and the 
association ended, the better, unless he is will- 
ing to be dragged to the level of the other. 
Make your selection advisedly, and not until 
you know thoroughly the man about to be 
your associate; do not enter hastily into a 
union. "Marry in haste, repent at leisure," is 
a trite old saying, and apropos in copartnerships. 
The antecedents of your associate-to-be must 
be without blemish. Not only that, but, if he 
is well-advanced in years, take note of whether 
he has been, thus far, successful or otherwise 
in his former undertakings. It may be said 
that because a man has been unfortunate or 
unsuccessful, this should not necessarily operate 
against him. The answer to this can best be 



138 WHOM TO TRUST. 

given by quoting the advice of one of the 
shrewdest and most successful merchants of 
the last generation: "Avoid unfortunate men 
in your business affairs," or words to that 
effect. We may not believe in the doctrine of 
fatality in its application to business, but 
experience and observation have taught us that 
the advice is sound, and it follows that we 
should struggle to avoid the black mark, "An 
unfortunate man." 



DOUBTFUL CREDITS. 139 



DOUBTFUL CREDITS. 

Many cases, after the most careful scrutiny 
and consideration, will be of a nature to make 
a decision, pro or con, difficult to arrive at. If 
it were a question of making a cash loan in 
these cases, we should not be long in deciding, 
but the trouble is that we are prone to look at 
our merchandise as something that must be 
kept moving, and not as cash. In doubtful 
cases, consider your goods as cash, and decide 
accordingly. This will facilitate the process 
of arriving at a conclusion very quickly in 
most cases; for in no case would you willingly, 
probably, loan the parties the amount involved, 
even though the interest on the money should 
be equal to the profit on the goods. Another, 
more off-hand but business-like method by which 
to determine doubtful cases, is to take the benefit 
of the doubt ourselves, and keep our goods for 
better and safer customers. Whether this is 
the safest policy is susceptible of arithmetical 
demonstration: Take four doubtful orders, for 
instance, of $1,000 each. It is safe to estimate 
that one at least will prove a loss, and in these 
instances there will be very little salvage. Does 
it pay to sell $4,000 worth of goods with the 
certain t}^ of losing $1,000, and the strong proba- 
bility that you will lose even $2,000? It will 



140 WHOM TO TRUST. 

surely be money in your pocket not to chance 
any of the four. 

There is another dangerous feature in know- 
ingly placing doubtful customers on our books. 
They may pay once or twice, and our fears of 
them are quieted; their orders are no longer 
so closely scanned; we look upon them as old 
customers, and our vigilance is set at rest. We 
often say to ourselves of this or that party: 
Well, he is good for this bill, and we will risk 
him for once and then drop out, but we do not 
always adhere to our good resolutions. The 
prudent business-man also takes into his cal- 
culations, in these cases, the condition of the 
country, and of trade. In prosperous times, 
he is disposed to take greater chances, and 
draw the line less sharply; but as depression 
sets in, either generally or at local points, he 
is the first to take alarm, and to reduce his 
outstandings to a basis of safety, and when 
the financial storm bursts, as it does periodi- 
cally, he has little to fear from its effects. 

Experience proves that in cases where the 
conditions and surroundings of the debtor 
appear in every way favorable and satisfac- 
tory, the losses are quite large enough without 
taking chances knowingly. How much or how 
little risk we are warranted in taking will nat- 
urally be governed by the per cent, of profit 
we expect to realize in a given transaction. 
On a basis of profit that would net us as mer- 



DOUBTFUL CREDITS. 141 

chants only 6 per cent, per annum on the capi- 
tal invested, the credit system of the country 
would be restricted to less than one-quarter of 
its present volume. Mercantile credits would 
be placed more nearly on a footing with bank 
credits. To make 10, or 12, or 20 per cent, on 
our capital, however, offers temptation and 
inducement to take proportionate risks. " The 
larger the interest the poorer the security," 
is an old maxim well understood by money- 
lenders. 

In conclusion, we may say of all doubtful 
applicants for credit, that our so-called Num- 
ber One risks prove doubtful enough, and 
when we think we are perfectly safe, we not 
infrequently "get left." This being the expe- 
rience of every business -man, let us confine our 
credit transactions to those whom we think 
are safe and reliable, and let the doubtful cases 
be served elsewhere. As a successful merchant 
and friend of the writer says: " There is plenty 
of good trade to be had, and I will have that, 
or none." 



142 WHOM TO TRUST. 



JOINT-STOCK AND COOPERATIVE 
ASSOCIATIONS. 

In the last fifteen years the legislative enact- 
ments of the different States have been snch as 
to favor joint-stock companies for mercantile, 
manufacturing and industrial pursuits, and the 
benefits arising from such legislation can hardly 
be over-estimated. The law in most States 
favors and makes easy the organization of stock 
companies. It enables inventors, discoverers, 
and men experienced in certain branches, to 
X3romote their enterprises by enlisting many to 
contribute each a little of their surplus, and 
the investors or stockholders have, on the other 
hand, the assurance, by legal enactment, that 
their responsibility, legal and moral, is limited 
to the amount of their paid-up stock. To the 
investor this is all-important. His own legiti- 
mate business is not in the least impaired or 
jeopardized by the possible entanglement or 
liability that might arise from a partnership. 

It is this feature, the non-liability of the 
individuals comprising a company, that we 
have to do with. Whatever capital is paid 
into a company, or agreed to be paid in, is ail 
that the creditor has to look to, and when this 
is lost, there is neither moral or legal responsi- 
bility attaching to any one of the members of 
the company. There is, so to speak, no moral 



ETC. 143 

status, no individual integrity, back of it. In 
this respect, therefore, partnerships differ from 
corporations, each and all the members of the 
former being personally liable for all the debts 
until they are paid or liquidated in some 
manner. 

We have become accustomed to corporations 
where the enterprise has been of a public char- 
acter, like railroads, banking, and financial 
institutions, and very extensive manufacturing 
establishments, and the existence of this class 
of enterprises would have been impossible if 
the enormous capital required had to be con- 
tributed by a few persons. The whole country 
— in fact every money center in the world — is 
interested in public improvements, and the bene- 
fits arising from this aggregation of capital, 
all applied to one purpose, are unquestionable. 

But when, as in late years, the stock-com- 
pany plan has found adoption by all kinds of 
enterprises, with capital ranging from $1,000 
upward, we are constrained to inquire into the 
purpose and motives of such organizations. 
To organize a stock company for carrying on 
a small mercantile business with $2,000 capital, 
more or less, can hardly find justification on 
the ground of any advantage to business in 
any sense. But that the promoters or mana- 
gers have reasons, personal reasons, generally, 
which make such a course desirable or neces- 
sary, we need never question. These small 



144 WHOM TO TRUST. 

"corporate bodies'' are usually "close corpo- 
rations," and the stock, and consequently the 
business, is all under the control of one man. 
This is about the only redeeming feature in 
them, in so far as it gives the business a man- 
aging head without any interference. It will 
be found that the manager, or proprietor in 
fact, is under a cloud; that prior business 
embarrassments, judgments, and claims against 
him, prevent his doing business in his own 
name, and the stock company furnishes a way 
for him to carry on his business without let or 
hindrance. In these cases the credit-man has 
only to consider the character of the manager, 
and he will have no difficulty in determining 
his or his company' s claim to credit. 

There is sometimes a bona-fide company, com- 
prising a large number of small stockholders, 
organized for carrying on a small manufactur- 
ing or mercantile business, rarely mercantile, 
however. The promoter of these is generally 
the manager, but, as in larger organizations, he 
is subject to the dictum of the board of direct- 
ors. Of these it may be said, that " too many 
cooks spoil the broth." There is no definite 
policy, and there is not enough individual 
interest, and both are necessary to insure 
success in any business. Usually, after the 
stockholders have wrangled over the affairs 
of the company for about a year, and the shoe- 
maker and the candlestick-maker have had 



JOINT-STOCK ASSOCIATIONS, ETC. 145 

their say on the management of a fancy grocery 
store, for instance, the concern passes into other 
hands. 

These are entitled to credit to the extent of 
their bank balances, and no more. No great 
harm is done to the business community by 
them. Stock companies have their advantages 
and their disadvantages, and the latter are rather 
greater than the former, in several important 
respects. For old, well-known firms to incor- 
porate, has many advantages, and the credit of 
the house being established, only matters of 
convenience or of expediency need be consid- 
ered by them. But in the case of enterprises 
that have still to gain the confidence of the 
community, the stock company labors under 
decided disadvantages over the copartnership 
in obtaining credit. Smith & Brown (copart- 
nership) can get a credit at their bank for 
§10,000. The Smith & Brown Co., with the 
same capital, and doing the same amount of 
business, finds it difficult to obtain one-half as 
much accommodation in their capacity of stock 
company. Go to any bank and ask why the 
discrimination is made, and they will tell you 
that they prefer to deal with individuals, for 
obvious reasons, and the merchant or manu- 
facturer, applied to for credit by them, will 
render the same verdict. 

Credit is given to individuals, up to the limit 

of their probability to pay, character, experi- 
10 



146 WHOM TO TRUST. 

ence, and reputation for honesty considered. 
Credit to stock companies is given to the extent 
of their paid-up capital. The former is bound 
to us during his life-time to pay his obligations; 
the latter, in case of failure, is ' ' wiped out of 
existence," and with it all the creditors. 

The granger movement, inaugurated in 1870, 
or thereabouts, affords a good illustration of 
cooperative associations and their outcome. 
Thousands of these were started. The grangers 
undertook to do the business of the country 
and monopolize trade by associating themselves 
into mercantile companies and appointing or 
electing men as managers. Too many men, 
too many minds, and the lack of experience 
withal, brought them to a halt. The old motto: 
"Shoemaker, stick to your last," conveyed a 
practical meaning to them which they had 
never before realized. 

These associations were cooperative in name 
but not in fact. Like cooperative societies for 
mercantile or manufacturing purposes, other 
than so-called Grangers, they lacked unity of 
interest, and lack of effort in a given direction 
and for a specific purpose. Every business, 
small or large, must have a ruling spirit at the 
head of it to give its affairs intelligent direction, 
and this master-spirit must be in a position to 
be supreme ruler. Everyone holding an inter- 
est can not be "boss," and this is apt to be 
considered the special prerogative of every 



ETC. 147 

member of a cooperative comx)any by reason 
of his supposed superior talent. 

The lack of economy in stock companies is 
also a noticeable and a bad feature, and one 
that operates especially against newly-started 
enterprises. Our own money is one thing; the 
money of a corporation in which we have but 
a part interest, is quite another, with the ordi- 
nary man. That close calculation, attention 
to details, and saving of pennies, so necessary 
for new-beginners in any business venture, are, 
we may say, rarely found in stock companies. 
The average man, not doubting honesty or 
ability at all, would not make a safe bank pres- 
ident or railroad manager. There are really 
few men who have the faculty of administering 
other people' s money as if it was their own. 
Of the trusted and tried manager of a bank, 
or other institution, in charge of the public' s 
funds, it may be said, that he feels more con- 
cern for these than he does for his own. He 
attaches an additional responsibility to his 
guardianship over them which his own belong- 
ings do not, or would not, call for. 

Bad failures of the stock, and especially of 
the cooperative, companies are rare. As they 
get but little accommodation, they do not 
become deeply involved, as a rule. 

With reference to their claims to credit, 
without an established record they should be 
held closely to cash transactions. 



148 WHOM TO TRUST. 



WOMEN IN TRADE. 



With the constantly-increasing number of 
women in mercantile occupations, engaging in 
nearly every branch of trade and rilling all man- 
ner of offices and clerkships, excepting those 
where bodily toil is essential, we might reasona- 
bly infer, as a result of the experience and the 
knowledge of business methods acquired by 
them, that the number of women in trade, on 
their own account, would be increasing steadily 
and proportionately. In looking over the Trade 
Registers, however, we find this verified only 
in a small ratio. Why this is so, is susceptible 
of explanation; but we are concerned here with 
another question, namely, that of credit, and 
the claims of business-women to it and to our 
confidence. 

Through force of circumstances we find 
women carrying on nearly all lines of trade, 
but those which to her are most congenial, and 
which she takes to from choice for a livelihood, 
are Millinery, Dry Goods, Bakery and Confec- 
tionery, Notions, Stationery, and business of 
the kind in which her own sex are largely her 
patrons, and for these branches she is not only 
well-fitted, but they belong to her by right of 
adaptation. 

The business, then, in which we generally 
find her engaged, being thoroughly legitimate, 



WOMEN IN TRADE. 149 

safe, and free from any extra-hazardous features, 
it is next in order, in considering her claim as 
an applicant for credit, to take an inventory of 
her qualities of mind and heart in their relation 
to business — her characteristics, in short — and 
see how far they are in harmony with the prin- 
ciples laid down in the foregoing chapters. 

An analysis of woman is, fortunately for the 
writer, outside the province of this treatise, 
which requires the enumeration of her many 
qualities only so far as they have any bearing 
on her case as a woman in trade. 

First, we may say, she is cautious. This is an 
excellent quality for all business-people to 
possess. She is saving when she earns her own 
money. Good quality number two : In all her 
transactions she looks to absolute safety, and 
can seldom be induced to take any chances that 
might imperil her business or her future. She 
is eager for the dollar, but she is not over-am- 
bitious, like man, and her conservatism keeps 
her inside of the danger line. She is not over 
sanguine, and to her a bird in the hand is worth 
a ilock in the bush. She is afraid of entangle- 
ments and business complications, and is deter- 
mined to avoid them. Men might follow her 
example with advantage in this respect. She 
is in mortal terror of lawyers, as she is of rats, 
and she steers clear of the meshes of the law by 
giving it no occasion for interference. In her 
perceptive faculties and intuitive knowledge of 



150 WHOM TO TKUST. 

things, especially where her pecuniary interests 
are concerned, she stands admittedly as man's 
superior. 

When we find her in business at all, she is 
there for the sole purpose of making her living, 
and she engages in no hap-hazard operations 
whereby she might lose her foothold. Loss of 
her little capital would be an irretrievable ca- 
lamity, and she fully appreciates the hopeless- 
ness of her situation in case of failure. She is 
not devoid of ambition, but she does not permit 
it to lead her into trying to out-do her neighbors 
or to eclipse the world. She is simply content 
to make her living, and is not half as easily 
"gulled' 5 by glittering schemes, as are men. 

She is also a good credit manager, and if you 
can get her to trust you at all with any of her 
goods or chattels, you may deem yourself highly 
honored. She does not readily part with her 
property on a promise to pay, as is the case 
with many of our business-men. If she trusts 
at all, she wants good assurance of payment, as 
agreed, and nothing short of an almost absolute 
certainty will assure her. It need not be feared, 
therefore, that any considerable portion of her 
capital will be tied up or lost in bad debts. 

There is another feature in favor of women in 
trade. They have no money- squandering hab- 
its. They neither smoke, drink, x>lay billiards, 
or do any of the other countless things for 
which men spend, and feel they are called upon 



WOMEN IK TRADE. 151 

to spend, money, and the savings from this 
source, alone, will go far toward supporting a 
woman and keeping her business intact. In 
fact, in a small business, such as we usually 
find her engaged in, her chances, owing to her 
economy, would seem to be better than man' s. 

In the different branches of trade carried on, 
some stand higher in the credit-man's estima- 
tion than others. This is owing both to the na- 
ture of the business and the men, as a class, 
engaged in them. Of the houses, the nature of 
whose business brings them in contact with 
women, and who depend largely on her for 
patronage, it may be said that their losses from 
bad debts through their female customers, come 
within the average range. But this is saying 
a good deal in her favor when we consider that 
she does business on very meager capital, and 
her creditors trust almost entirely on her own 
recognizance in meeting her obligations. We 
might further add, that the financial status on 
which women receive credit, would not warrant 
us in giving credit to men, whatever their busi- 
ness might be. That she should be the recipi- 
ent of such extra confidence and favors, can 
only be accounted for on the grounds of an es- 
tablished record she has made for herself in the 
mercantile world. We are governed by obser- 
vation, experience, and precedents, in the mat- 
ter of making credits, as in all else. 

In summing up, then, and considering all her 



152 WHOM TO TEUST. 

good points and leading traits as an applicant 
for credit, the verdict would be in her favor, 
and onr fullest confidence, within the limits of 
ordinary prudence, would seem to be justifi- 
able. 



CHATTEL MORTGAGES AND OTPIER LIENS. 153 



CHATTEL MORTGAGES AND OTHER 
LIENS. 

Not infrequently we find, in looking up the 
standing of a firm, that its stock of merchan- 
dise and personal property is covered by chattel 
mortgages, or that some dealer, who is already 
on our books, gives a chattel mortgage. Ordi- 
narily that is equivalent to insolvency, and 
eventual failure, and credit is not warrantable 
under such circumstances, as a rule. Every 
dollar's worth of your goods simply goes to 
" the other fellow's " security, and surely your 
interest does not lie in that direction. 

The law in regard to chattel mortgages dif- 
fers materially in different States. In some it 
has been decided that the instrument is not 
good on a stock of merchandise that is con- 
stantly changing its identity; but even here, 
possession is "nine points of the law," and 
when the mortgagee once gets possession by 
virtue of his mortgage, it means time and 
expense on the part of the unsecured creditors 
to dislodge him. 

Of late years the mercantile agencies have 
been very diligent in watching and notifying 
their patrons of all matters of record, so far 
as they concern people in trade, and who are, 
presumably, buying on credit. It is, there- 
fore, almost equivalent to a confession of bank- 



154 WHOM TO TRUST. 

ruptcy for a dealer to have a chattel mortgage 
recorded against him, inasmuch as the whole 
business community, far and near, will at once 
be advised of the fact, and cause every creditor 
to become clamorous for an immediate settle- 
ment of his claim, and the man who has 
found it necessary to chattel-mortgage his 
stock is never in condition to stand a 
"ran." 

Where fraud is contemplated, the chattel 
mortgage offers the readiest means for carrying 
out the purpose without let or hindrance. 

'It is not asserted that the unsecured creditor 
always loses his claim where a chattel mortgage 
is on record. There are extenuating circum- 
stances, sometimes, but these, as well as the 
parties themselves, must be thoroughly known. 
It must be borne in mind that in these cases 
you are trusting, not alone to the man's honor, 
but also to the good-will and friendly feeling 
of the mortgagee toward his and your debtor. 
All chattel mortgages are so drawn that the 
mortgagee can foreclose at any time, notwith- 
standing the instrument may be drawn payable 
at a given period. 

Not over wide-awake dealers chattel-mort- 
gage their property, sometimes to relieve them 
of temporary embarrassment, without appre- 
hending the effect it will have on their credit 
and the minds of their creditors. Many of 
them are probably not aware that every item of 



CHATTEL MORTGAGES AND OTHER LIENS. 155 

record is at once reported to their creditors, 
but such is the fact. 

In the case where judgments are on record 
against parties, no one would deem it safe to 
extend credit, and yet a chattel mortgage is 
not only equal to a confession of judgment, 
but it makes a voluntary transfer of the prop- 
erty under it, to have and to be held by the 
mortgagee until certain conditions are complied 
with. On the other hand, the judgment can 
only be satished by execution and levy on 
property found. The chattel mortgage is 
already satisfied, and execution and levy are 
unnecessary. Attention is called to this for 
the reason that in the minds of many, a judg- 
ment is a more serious affair than a chattel 
mortgage, and that their interests are more 
endangered by the former, which is entirely 
erroneous. This may be said, however: While 
the judgment creditor is constantly on the 
watch for property to satisfy his claims, and 
the debtor's business is in constant jeopardy, 
with the holder of a mortgage amicable 
arrangements and terms have usually been 
made by which the debtor can prosecute his 
business without fear of molestation, so long 
as the conditions of the instrument are carried 
out. 

To extend credit under circumstances so mani- 
festly hazardous would be akin to inviting a 
loss and throwing away your property of your 



156 WHOM TO TRUST. 

own free-will and accord, and this is assuredly 
not your intent, as a business-man. Astonish- 
ing as it seems, however, no concern is ever so 
unworthy as not to be able to get credit some- 
where. The least that can be said of houses 
that cater to this class of risks, is, that they 
themselves are lacking in the elements neces- 
sary to permanent success. 

The good, sound, conservative merchant has 
no use for the chattel-mortgaged dealer, unless 
the mortgage runs to himself. 



INSURANCE. 157 



INSURANCE. 

No merchant should be entitled to credit 
who does not keep his stock and other personal 
property fully covered by insurance. In some 
localities insurance is very high, but where it 
is so the risk is proportionately great, and if 
the risk is extra hazardous to the insurance 
companies, why should it not be considered 
equally so by the owner of the property? Even 
if the owner be out of debt, and the loss, in 
case of fire, falls entirely upon him, it is still a 
transgression of good business principles not to 
be insured. 

The good business-man has for his motto that 
what is worth possessing is worth insuring, and 
the expense should be regarded in the same 
light as any other current expense, such as 
heat, light, etc. 

The case before us is that of a merchant who 
owes for a large portion or for all of his stock, 
and in justice to his creditors he should be fully 
insured; in fact, be insured for their benefit 
directly. It is a safeguard, and one which 
every creditor has a moral right to exact of his 
debtors. 

Railway corporations do not, as a rule, 
insure. Neither do some of our wealthy real- 
estate owners. Their course, however, is justi- 
fiable from a different stand-point from that 



158 WHOM TO TRUST. 

which pertains to the merchant or manufact- 
urer. Their property is scattered over a vast 
area, and no single fire would cause them any 
considerable loss. But with the merchant it is 
different. All his stock in trade, representing 
his capital, and often that of others, is located 
at one point, and a fire means financial ruin, to 
avert which the prudent man is careful to be 
insured, the protection thus offered being more 
than an equivalent for the expense incurred. 

Insurance statistics to the general reader have 
no rmrticular significance. They deal with a 
large array of figures of losses paid and risks 
written, which convey no special meaning to 
the uninitiated. 

To arrive at plain facts, we take the statistics 
of 1887, in which year we find the fire-risks 
written to have been $10,500,000,000 in round 
numbers. The premiums received for these risks 
was $95,000,000. The losses paid were $52,000,- 
000. This gives an average of nine -tenths of 
1 per cent, of premiums paid; that is, 90 
cents on every $100 worth of insurance. But 
in arriving at this average, we include farm 
buildings, improvements, and also Al building 
risks in cities, which will raise the percentage 
on mercantile and manufacturing risks very 
considerably, and it is these that we are con- 
cerned with; so that it is safe to say that one 
merchant or manufacturer out of every three, 
in the course of his business life-time, suffers 



INSURANCE. 159 

loss by fire. And when the chances of snch a 
catastrophe are narrowed down to one in three, 
not much margin is allowed. From i)ersonal 
observation, and in the absence of any statistics, 
I will say, that in the course of thirty years, 
one of every two dealers has suffered loss by 
fire; and this view finds corroboration in the 
minds of many experienced men. Of course, 
the risk is greater in some branches of business 
than in others. Of the printing establishments, 
for instance, it is safe to say that their exemp- 
tion from fire does not exceed twenty years, so 
that of one hundred concerns in existence to- 
day, in twenty years not one will have escaped. 
Many lines *of manufacture are equally and 
even more hazardous. 

On a basis of premiums received by insurance 
companies for risks written, and judging also 
from long observation by parties in a position 
to know, we may assume, in regard to the ordi- 
nary manufacturing and mercantile business, 
that every man engaged in these pursuits for a 
life-time suffers damage by fire to a greater or 
less extent at some period; and even in the 
more fortunate cases, the total cost of keeping 
always insured bears no relative proportion to 
the loss. 

Instances are not wanting where men have 
constituted themselves into insurance compa- 
nies, and become their own insurers, on the 
hypothesis that what they save in premiums 



160 WHOM TO TKUST. 

will cover an eventual, though never-expected, 
loss. The wisdom of this policy can not be 
reconciled with the facts before us, and it must 
be put down as penny wise and pound foolish, 
and in the long run, disastrous. 

From the stand-point of the creditor, it is 
every man's duty to insure. The moral obli- 
gation exists, but there should also be a legal 
obligation. We can not coerce our debtors to 
insure, but we can refuse to trust them, and 
this will bring about a voluntary compliance. 
No man is entitled to credit whose concern and 
feeling of responsibility is lacking to such a 
degree as to willfully jeopardize his creditors' 
safety. 



INFORMATION PERTAINING TO CREDITS. 161 



MISCELLANEOUS INFORMATION PER- 
TAINING TO CREDITS. 

The merchant or salesman of large experi- 
ence will be governed in making credits by 
some things quite insignificant in themselves. 

(1) In this day of traveling agents, no mer- 
chant need go out of his store from one year's 
end to the other to buy goods; he can buy 
all and more than he wants, and generally 
do it better and cheaper from agents than by 
going into the market himself. This does not 
apply equally to all lines of business, for in 
some, the matter of selection of goods and 
styles makes a personal visit imperative. The 
force of this argument is intended to show that 
people do not have to go out of their way to 
buy, and it is not natural for them to do so. 
When, therefore, an order is received from a 
stranger for a staple line of goods that can be 
bought in any jobbing town, and when that 
order comes from a locality not at all tributary 
to your city, but by reason of transportation 
facilities, belongs to another town, the natural 
and rightful inference is, that the man has 
exhausted his credit nearer home, and there- 
fore seeks new connections. But even did 
geographical barriers and reasons not exist, it 
would still be wise to look with caution on 

unsolicited orders from strangers. Of course, 
11 



162 WHOM TO TRUST. 

we all get more or less mail-order trade, and 
this can not be too highly valued. It is an 
indication of the buyer' s confidence in us, which 
thus finds expression in his preference for us. 

(2) There are houses who do not employ 
agents, and who do a large business, notwith- 
standing. They are generally old, well-known 
houses, however. They advertise largely by 
means of prices-current and circulars, and 
undoubtedly have inducements to offer, but, 
all things being equal, it can not be denied 
that personal solicitation is the most effective, 
and that, on an even footing, personal suasion 
will have the advantage. 

Preference in trade is traceable to satis- 
factory past relations, and the result is confi- 
dence. On this hypothesis, houses become 
firmly established, as we say, and command 
trade, both through their representatives and 
otherwise. People do not "switch off" from 
one house to another without reason, and the 
reasons are many; nor is the loss of a customer 
always to be regretted. But, accepting the 
facts as we find them, they prove that instead 
of having business thrust on us, we find that a 
continual scramble is necessary to get even our 
share. Logically, then, when orders are ten- 
dered us without special solicitation on our 
part, and without any claims on the sender, 
by reason of acquaintance and previous busi- 
ness relations, close scrutiny is always advisa- 



INFORMATION PERTAINING TO CREDITS. 163 

ble. We must, of course, use judgment in the 
matter. If you are handling a specialty, which 
you control, and no one else sells, people have 
to patronize you with or without solicitation. 

(3) A buyer who is not particular about 
prices, though sure to want the longest time, 
is likewise a subject for distrust. In these 
times of active comxDetition, no dealer can afford 
to be overstocked or pay too much for his 
goods. Recklessness in buying, both as to 
quantity and prices, does not portend success, 
and, as creditors, we are interested in every 
customer's success. 

(4) We like to deal with the liberal ' ' liye- 
and-let-live " buyer. It is a pleasure to do 
business with him. This includes, also, the 
man who knows his business thoroughly. He 
knows what goods he needs and can sell, and 
he is posted on their values, and is willing to 
give value for them. He does not haggle; he 
either takes or leaves them. This represents 
the better class of merchants. Not quite so 
agreeable is the over-particular, cranky indi- 
vidual. 

We find engaged in trade, as in other occupa- 
tions, a liberal sprinkling of so-called "cranks," 
or kickers, but the mercantile representative 
of this class has the best chance for unretarded 
growth. The business community being, as a 
rule, accommodating and eager to please, our 
crank finds it easy to ply his vocation, and 



164 WHOM TO TEUST. 

impose on our good-nature. He is forever 
being smoothed over only to find Mm breaking- 
out in new spots. In his way, he is a perfect 
autocrat. Things must be to suit his notion, 
and reason or logic he has no use for. 

Business-houses, and their salesmen in par- 
ticular, are not long in rinding him out, and 
after he is once ''stamped and labeled," we 
know about how to handle him, and save our- 
selves much annoyance. He is labeled all the 
way through, from the office to the shipping- 
room. Opposite his name on the ledger is 
marked "crank." Except by special request 
no ''monthly statement" must be mailed to 
him. The chances are that he has a special 
grudge against statements, and we are gener- 
ally made aware of this peculiarity of his after 
the first round. His orders we mark " crank," 
when we send them to the shippers. This is 
done to insure extraordinary care in filling 
them to the letter. Change of quantities or 
the ordinary substitutions are not permissible 
in his case. To ship him quarter of a dozen 
rather than break a package for a sixth of a 
dozen only, as ordered, or to substitute even a 
better article than the one mentioned, are lib- 
erties which will cost you return freight 
charges, and entitle you to a liberal round of 
abuse besides. Even should the label on a 
bottle be pasted on carelessly, and be a little 
lop-sided and out of true, his watchful eye is 



INFORMATION pertaining to credits. 165 

sure to detect the blemish. He seems to live 
for and to have a special aptitude in the direc- 
tion of finding fault with things. Nor is he 
ever satisfied to accept your prices and terms 
without considerable haggling. 

But, though he is a disagreeable customer to 
deal with, the crank is not without some 
redeeming characteristics. He seldom asks 
favors; he can be depended on to meet his 
engagements, and usually we find him taking 
advantage of all the cash discounts. He rarely 
fails from any of the ordinary causes, and if he 
can be handled, and his trade be made profita- 
ble to us, we may feel secure in his paying 100 
cents on the dollar. 

(5) A valuable hint, worth knowing, is in 
regard to the course pursued by different peo- 
ple to obtain credit. We are frequently called 
upon to write to parties, telling them that the 
information concerning their standing does not 
warrant opening an account. This we write 
only when we are satisfied that we do not wish 
to extend them credit. As long as we are in 
doubt we do not write in that forbidding strain; 
but where this is done, our letter will receive 
treatment of various kinds. The man who is 
able and willing to pay for what he buys, will 
riot waste any words or stationery on you. He 
will simply buy his goods elsewhere; nor need 
you ever look for any more business from him. 
The man who is responsible need not beg for 



166 WHOM TO TKTJST. 

goods; in fact, it is a hardship for him to keep 
from over-buying of the many houses eager to 
supply him. On the other hand, the man who 
answers your letter by making explanations 
and asseverations of his intention and ability 
to pay, without, however, giving facts or fig- 
ures, this man, four times out of Hve, makes 
us regret a subsequent change of mind con- 
cerning him. No responsible man will take 
your refusal to trust him, with equanimity; it is 
a thrust against his integrity. If he says any- 
thing at all, and is a polite man, he will simply 
tell you to keep your goods. 

Experience has taught this lesson, that when 
we find men begging to patronize us, in spite 
of ourselves, their credit is at a low ebb in 
other directions. No man will allow himself 
to be snubbed if he is independent of us, and 
the fact that he does so, is a priori evidence of 
weakness, morally and financially, particularly 
the latter. 



OLD CUSTOMERS. i67 



OLD CUSTOMERS. 

To avoid losses from this source seems next 
to impossible. We feel that a customer who 
has traded with us for years, and who has 
always kept a satisfactory account, is entitled 
to accommodation of extra time, should he 
desire it, and we are glad, usually, not that he 
wants a little indulgence, but that we can be of 
service to him. No doubt enters our minds as 
to his financial soundness; we accept as bona 
fide the reason he gives us for asking the favor, 
and probably he is thoroughly honest in believ- 
ing that all he needs is a temporary extension. 
Most men never fully realize their condition 
until they are hopelessly bankrupt, and until 
they reach this point, and can go no farther, 
they live in hopes of extricating themselves, 
and feel certain that they could do so if their 
creditors would only extend their accommoda- 
tion a little longer. In many cases it will be 
found that " dry-rot," like some insidious dis- 
ease, has done its slow, but very effective, work. 

In the case of our old, and heretofore prompt 
customer, quite unbeknown to us he has gradu- 
ally been running behind, and, instead of a tem- 
porary inability to pay, he is practically insolv- 
ent when he asks for an extension. Some day we 
learn of his assignment, to our very great sur- 
prise, for nothing is more remote from our 



168 WHOM TO TRUST. 

thoughts than that he should ever fail. We 
console ourselves, if we are only moderately 
interested, with the reflection that he might 
have been our debtor to a much larger sum, if 
he had chosen. 

Gradual growth and accumulation of capi- 
tal are indispensably necessary to, and show 
indications of, a healthy business. Some years 
may show less gain than others, but a ' ' stand- 
still ' ' is not a sign of prosperity. Every busi- 
ness man should be a little better off financially 
at the end of each year, and when we find a 
customer who has to sacrifice a well-earned 
reputation for punctuality and good business 
methods, which it has taken him years to estab- 
lish, and of which he has just reason to be 
proud, we may infer that his course is directed 
by necessity, and that his future is not propi- 
tious. Of this fact he always gives us due 
notice. 

The only method to pursue is to look up the 
standing of our customers at least once a year. 
The man who was in good circumstances a year 
ago may have lost money in one way or another, 
and have become, possibly, insolvent during 
even this short space of time. It is not safe to 
trust any man, year in and year out, without 
' ' looking him up ' ' at stated intervals. This is 
not meant to involve the expense of a mercan- 
tile report, but simply the labor of referring to 
the rating in the agency books. Where these 



OLD CUSTOMERS. 169 

have remained unchanged, or have not been 
changed for the worse, from one period to 
another, we need go to no further expense; 
but in those cases where we find ratings im- 
paired or suspended, it will be necessary to get 
all the new and latest imformation we can. 
We are often surprised, after a concern has 
failed, to find that it had no rating for some 
time previous. Had we been governed by a 
system of periodical investigation, we should 
have discovered this change in time, possibly, 
and taken warning. 

Another group of customers needs mention 
here, concerning which it is difficult to govern 
our conduct by any fixed rules. These are the 
customers on onr books who have never been 
particularly prompt. They are afflicted with a 
chronic ''slowness," which never changes, 
except for the worse, and even improvement in 
their financial condition does not incline them 
to change their practices, Whatever their cir- 
cumstances may be, they meet their obligations 
only on the most earnest solicitation; but for 
all that, they are clever men to do business 
with, and are responsible, on an average. Mani- 
festly, the fault lies as much with the too- 
indulgent creditor as with the debtor; for, if 
need be, they can usually be brought to time by 
a positive demand. Although there are enough 
of these ' ' slow coaches ' ' to make a large class, 
we can not treat them as a body, but must 



170 WHOM TO TEUST. 

do so individually and from a stand-point of 
the known peculiarities and condition of each 
individual, and our past experience with him. 

It might seem that the losses incurred would 
be greater from opening new accounts than 
from those already on our books, but this is 
not so, with conservative houses, at least. We 
rarely u get left" on a first bill. The new 
applicant for credit is "sifted" thoroughly, 
and before an account is opened with him, his 
standing and responsibility must be above sus- 
picion. Not infrequently we feel justified in 
selling a first bill with the secret determination 
to stop there; but, the danger herein lies in the 
fact that we do not always adhere to our good 
resolutions. Prompt payment of the first bill 
leads to the second and a third credit, and so on, 
until our first impressions and fears are quite 
forgotten, or, at any rate, are overshadowed by 
a few satisfactory transactions. We are war- 
ranted, sometimes, in the absence of definitely 
satisfactory knowledge, in speculating on prob- 
abilities and taking ou.' chances for sixty or. 
ninety days on one bill, when we would not be 
willing or justified in giving a "line of credit." 

One or two swallows do not make summer; 
neither do a few prompt payments entitle a 
man to credit out of proportion to his responsi- 
bility, or against unfavorable surroundings and 
antecedents, or yet undemonstrated ability and 
character. 



LIMIT OF CREDIT. 171 



LIMIT OF CREDIT. 

The limit of credit in any given case must 
inevitably be governed by things outside the 
actual capital invested, as much, or nearly so, 
as by the capital itself. No two cases could be 
judged alike in this respect, though the capital 
might be the same in both. We should have 
to take into account all the surroundings and 
facts, as required by our analysis of men and 
things, and this procedure would necessarily 
give us more latitude in the one case than in 
the other, irrespective of pecuniary resources. 
It would seem, therefore, that to draw a line by 
which to govern our conduct in the ever-vary- 
ing conditions which are presented to the credit- 
man, that the task would be not only an intri- 
cate one, but one next to impossible of solution. 

But all things have a starting-point, and we 
will commence by stating two propositions: 

First, we know that the man whose capital is 
sufficient to enable him to buy for cash, and 
who owns all his stock, accounts, etc., free of 
incumbrance, is safe. We incur no risk in sel- 
ling to him. The man who owes nothing, can't 
fan. 

Second, we know that the man whose liabili- 
ties are equal to his assets is not safe, and the 
point is reached here where the creditor's 
money is in jeox^ardy, although nominally rep- 



172 WHOM TO TRUST. 

resented by property of various kinds. A con- 
dition worse than this need not be entertained, 
even for argument' s sake. 

We establish, then, a middle-ground between 
the two propositions; namely, between absolute 
safety and the point where safety no longer 
exists. The first proposition needs no explan- 
ation or argument, and the credit-man's task is 
made easy. But how far may we with safety 
diverge from the cash basis? That we must 
keep inside the limit of the second proposition 
is also unquestioned. We have, to be sure, 
assets, consisting of stock, accounts, etc., aggre- 
gating in all $10,000, and we will say that these 
assets consist half of merchandise and half of 
accounts and bills receivable. The liabilities 
we will suppose to be of equal amount, $10,000. 
We are here supposing by no means an excep- 
tional or aggravated case. There is quite a 
percentage of business carried on with no better 
status than that, and, as in this case, where 
absolutely no capital is visible. To the experi- 
enced credit-man the case is a hopeless one for 
both the debtor and the creditor, because that 
the business, sooner or later — and the sooner 
the better — must be closed up, is inevitable. 
Then, what would be our reasonable expecta- 
tion? JSTo sane man would expect the estate to 
pay dollar for dollar, surely. Even under fa- 
vorable circumstances, and with a good business- 
man for assignee or receiver, the assets would 



LIMIT OF CREDIT. 173 

not net the creditors over $6,500, or 65 per 
cent, of their claims, and this may be consid- 
ered a liberal estimate under an assignment. 

What, then, would have to be our limit of 
credit to keep within the bounds of safety? On 
the supposition, justified by experience, that 
the assets of a mercantile firm, in the event of 
foreclosure or assignee's sale, do not bring over 
65 per cent., the limit of credit, to insure us 
dollar for dollar, must be fixed at 65 per cent, 
of the inventory value of the assets. In the 
case we have assumed, $10, 000 assets would pay 
liabilities of $6,500, and this amount must be 
established as the limit, and in all cases this 
relative proportion should be maintained. The 
shrinkage of 35 per cent, represents the capital 
invested, but creditors are paid in full, and this 
is as it should be. The man who embarks in 
business is supposed to risk his capital, and not 
ours, in the enterprise, and in case of loss or 
failure, we, as prudent business-men, should 
look to it that there is sufficient margin repre- 
sented by capital to provide for emergencies. 
The nature of the assets needs to be considered, 
of course, and the probable shrinkage estimated 
according to their value and convertibility 
when credits are made, as will be seen by refer- 
ence to chapters on Assets. 

A case such as we have cited above, where 
the liabilities are equal to the assets, is practi- 
cally one of hopeless insolvency, and perhaps 



174 WHOM TO TEUST. 

not once in a life-time do conditions of trade 
change in favor of the debtor so as to save him. 
The rapid increase in the value of goods during 
the war placed many insolvents on their feet 
again, but wars can not conveniently be invoked 
for the preservation of sinking concerns. 

MEECAOTILE EEPOETS ANALYZED. 

p\ T o. 1.] 
F. B. Ceesso^", Stoves, Tin-Shop, and Cornices, 
Dakota. 

(February 12, 1888.) 

He was formerly clerk in this city, and was 
discharged. He afterward associated himself 
with one Sardell, and in May, 1887, they began 
business under the style of Sardell & Cresson, in 
the manufacture of iron cornices. The business 
was continued for a short while, when Sardell 
withdrew, and Cresson continued, under the 
style of City Gfalvanized Iron Works. In May, 
1887, he was said to have no means, whatever, 
of his own, and his record as an employe was 
said to be poor. It was said, his salary of 820 a 
week was insufficient to maintain his tastes; 
that his extravagance ran to women, and that 
he was in debt here for such articles as jewelry, 
board, etc. He had a small plant in his busi- 
ness, with little or no stock, and what capital 
he had invested was said to have been borrowed 
from some lady friend. At home he was virtu- 
ally unknown to the trade at large; his pros- 



MERCANTILE REPORTS ANALYZED. 175 

pects were reported as poor, and he had no 
credit. At present he is said to be still single, 
about forty years of age, keeps a small store, 
does not credit much, has but a small capital 
and nothing above his exemptions ; is regarded 
as honest in his dealings; might pay a small bill. 
To some of the trade who have asked him to 
make a statement of his worth, he will only say 
that he has all the backing needed to carry him 
through; that a party with $5,000 stands be- 
hind him, but he refuses to divulge his friend's 
name. 

ANALYSIS AND REMARKS. 

Under Character, Habits, Ability, Economy, 
this case can readily be disposed of. He has 
no capital or responsibility, and lacks all the 
elements necessary to insure success. His char- 
acter, habits, and associations are bad. He has 
shown that he has not ability or application 
enough to hll a clerkship. He has no notion of 
economy. Not known by the trade at home. 
Buys goods elsewhere, and evidently is trusted 
by some. If goods have any value at all, they 
are worth more on our shelves than on the 
books, in this case. 

[No. 2.] 

Gf. A. Frank & Co., Northern Wisconsin. 

Wholesale Grocers. 

(June 10, 1887.) 

This firm commenced business here three 
years ago, and is composed of Gr. A. Frank 



176 WHOM TO TRUST. 

and L. A. J . The former is a married man, 

about thirty-five years of age, who, we believe, 
failed once some time ago, but is spoken of in 
favorable terms. Just prior to entering in this 
business, was engaged in shipping fruits to towns 
in this region, and not understood to have any 

means of his own. His partner, J , was an 

explorer, and understood to have a few thousand 
dollars. They started out with a stock of 
about $3,000, which they claimed was all paid 
for. They have been doing a large business 
from the start, and making some money, but 
their capital is rather inadequate for the trade 
they do, although there is no complaint regard- 
ing payments, and we understand they confine 
the bulk of their purchases to one house. 
About one year ago, a representative of a house 
called on them and received the following 
statement of their condition: 

Stock, $10,000; outstandings, $6,000; cash, 
and in bank, $200; liabilities, about $9,000; on 
open accounts, about $500 past due, but not 

pressing, and $1,500 due the bank. J had 

homestead worth about $800. Merchandise 
sales for first six months of the year, $27,000, of 
which a little over one-fourth was cash. 

This statement was considered a candid one, 
but showed that they credit quite freely for a 
house with so light active capital; but claimed 
to scrntinize closely. They are regarded strictly 
honest, and we understand they are given what 



MERCANTILE REPORTS ANALYZED. 177 

little bank accommodations they need. They 
appear to have credit for the demands of their 
business, but it is probably reasonable to sup- 
pose that their account is allowed to run along. 
They do an immense business for their capital, 
which would be, nominally, §4,000 or $5,000, 
but thus far seem to be able to turn themselves 
without any apparent inconvenience. Are very 
fair business-men, steady and attentive, but it 
is advisable to use some caution in handling 
the account, as their business is crowding so 
rapidly that they are apt to overreach them- 
selves. 

Supplemental to this agency report, is that- 
made by a traveling agent: F is a good 

salesman, and a pusher. His partner is a non- 
entity, except as to capital originally furnished. 
Doing too much credit business for means; how- 
ever, in fair credit, and seem to get all the goods 
needed. Think them honest and well-inten- 
tioned toward everybody. 

ANALYSIS AND REMARKS. 

That this concern is being "carried " by some 
one, or several large creditors, is evident. If in 
case of any set-back or dull season these should 
become alarmed, security would be demanded 
and probably be given, in which event outside 
creditors will find little left to satisfy their 
claims. They are undoubtedly honest and pos- 
sibly solvent to-day, should they wind up. 
12 



178 WHOM TO TEUST. 

The limit of credit allowable on their reported 
condition simply, must be very small. It is 
not likely that they can continue the business 
on the present ' ■ broad gauge ' ' very long. 
Volume of Business in Proportion to Capital 
will aid us in our decision. Trying to bore a 
two-inch hole with a gimlet is not a successful 
undertaking, usually, and theirs will be an 
exceptional case if they succeed. We are bet- 
ter off, most likely, to let those continue to 
supply them who have done it thus far. 

[No. 3.] 

B. C. Alleit & Co. Jobbing Town, Ind. 

Dry Goods. 

(Full Report, dated October, 1881.) 

A has been in business since 1845. Is now 
seventy-two years old. After the war, reputed 
worth $150,000 and in Al credit. At this 
juncture A bought out the managing partner 
and took his son, who had just finished school, 
into partnership. From this on, the concern 
has been going down, mainly from poor man- 
agement. The senior is not, and never was, a 
good business-man. At the beginning of the 
war A was heavily in debt, through former 
failures, and obliged to do business under 
"cover." Though penurious in business ex- 
penditures, family and personal expenses have 
averaged for years not less than $10,000 annu- 
ally, and continue at about that rate. From 



MERCANTILE REPORTS ANALYZED. 179 

1871 to date, only one or two years have shown 
any profits, largely owing to general depres- 
sion and decline, but more largely to poor 
management. They still do a large business, 
and show $110,000 surplus, but are slow pay, 
and collections occasionally put into lawyer' s 
hands. They are not in Al credit, but seem to 
get all the goods they need. Homestead mort- 
gaged for $9,000, in 1880, to satisfy claim for 
borrowed money. Wife said to own some val- 
uable real estate. Assets represented to consist 
of: Stock, $135,000; accounts and bills receiv- 
able, $95,000; equity in improvements on leased 
ground, $8,000; lands in various parts, repre- 
sented at $9,000; interest in business carried on 
by another son, $18,000; total assets, $270,000. 
Liabilities: On open account, $93,000; due 
bank, $22,000; due for notes and acceptances 
(bills payable), $45,000. No instruments on 
record against them as a firm. A is said never 
to have applied himself closely to business, 
paying more attention to outside affairs. The 
son devotes much of his time to society mat- 
ters. Business managed by employes. 

ANALYSIS AND REMARKS. 

This report was the result of a special inves- 
tigation made by a representative of an Eastern 
house. A large line of credit being involved 
in negotiations then pending, a thorough exam- 
ination of the affairs of A. & Co. seemed 



180 WH03I TO TRUST. 

necessary, particularly since the prevailing 
impression among the trade did not favor them. 
On receipt of the report, negotiations were 
dropped, and in the light of subsequent events, 
the Eastern house certainly showed both wis- 
dom and conservatism in its decision. In 1883, 
the assignee of A. & Co. made the following sum- 
marized statement: 

ASSETS. 

Nominal value of stock $ 95,000 

Nominal value of accounts and bills receivable 80,000 

Nominal value of outside interests 20,000 

$195,000 
Appraised market value of stock $ 55,000 

Collectible accounts and bills receivable 45,000 

Available outside interests, about 5,000 

$105,000 

LIABILITIES. 

Secured to bank and others $ 30,000 

Unsecured claims 95,000 

There was realized $78,000. The dividend to 
unsecured creditors was 37 per cent. 

Two years before the failure a surplus of 
$110,000 was claimed. How is this shrinkage 
accounted foii Lack of ability, economy, and 
personal application to business, were the 
causes of this concern' s downfall. The item of 
personal expenses alone, in the face of a series 
of unprofitable years, would cause a serious 
drain on the capital. The difference between 
the nominal and actual value of the assets 
shows great incompetency. It was found that 
goods, regardless of present value, were always 



MERCANTILE REPORTS ANALYZED. 181 

inventoried at cost, and that there was a large 
accumulation of old stock (see Inventory Valu- 
ations). Bad accounts and bills receivable were 
likewise kept on the books, instead of being 
charged up to profit and loss at the close of each 
year. The actual condition of affairs was more 
of a surprise to A. & Co. than it was to outsiders. 

[No. 4.] 

Smith Mercantile Co., Lumber and Mining 

Region, Wisconsin. 

(October 12, 1887.) 

Mr. P. Q. Smith, treasurer and manager, says 
the company was incorporated June last, with 
an authorized capital of $10,000, all paid in. 
Represented by merchandise. He says the 
business per month would aggregate $18,000; 
have $5,000 insurance on stock, and succeeds 
P. Q. Smith. Expects to carry about $20,000 
stock through the winter. Confine purchases 
to about five large houses. Keeps bank account 
with the First National Bank of Chicago and 
local bank. On July 26, 1887, they gave state- 
ment as follows: 

ASSETS. 

Cash value of stock in store $ 9,000 

Stock in transit 500 

Book accounts — good 800 

Cash on hand and in bank 600 

Real estate 2,000 

Total assets $12,900 

LIABILITIES. 

Merchandise, open account, not due $ 500 

Surplus in business $12,400 



182 WHOM TO TRUST. 

Smith says, further, that he considers his in- 
terest, outside of the company, worth $50,000, 
over all liabilities. 

The company's books show he paid out, in 
about one month in August and September, 
$5,000 in checks on two banks, leaving but a 
very small balance at present time. He claims 
to have about $10, 000 now, gives liabilities of 
about $2, 000, and says outstandings are about 
the same. Many claims have been received 
against Smith individually, and some are in 
attorneys' hands, unpaid, with which nothing 
can apparently be done but to await his pleas- 
ure, and it is said that when he has the money 
he dislikes to pay a debt with it. The idea 
seems to be entertained that the fact of incor- 
poration was for the purpose of limiting his 
liabilities, and to block the collection of exist- 
ing debts. 

ANALYSIS AND EEMAEKS. 

Under Stock Companies and Cooperative 
Associations we will find all that governs this 
case. Smith formed this company as a means 
to do business, and to defraud his creditors. 
Statement of assets and liabilities and surplus 
would make a very good showing in an honest 
man' s hands. The sum of the liabilities is out 
of proportion to the monthly sales claimed. In 
that locality the proportion of cash sales is vf ry 
small. Eight hundred dollars accounts and 



MERCANTILE REPORTS ANALYZED. 183 

bills receivable is also a misstatement, because 
they are known not to do a cash business. The 
goods probably go largely into his own mines, 
and these, it would appear, are not within reach 
of Smith' s old creditors, nor would they be to 
those of his company. 

Altogether, the concern is not worthy of 
credit; still it is known that they buy largely 
from two firms, but these probably have an 
" inside track." Those who can not get on the 
' ' inside ' ' had better stay out altogether. 



[No. 5.] 
Meyer & Thompson, Michigan. 

General Store and Manufacturers Furniture. 

(December 1, 1887.) 

Firm is composed of N". O. Meyer and U. V. 
Thompson. Ages thirty-two and forty, and both 
married; and they have been in business for a 
number of years, and our report of July, 1886, 
which was the time of their last statement, is as 
follows : 

' ' Mr. Meyer makes the following statement 
of assets and liabilities : Stock in store, $13,000; 
factory stock, $8,000 ; machinery and dry-kiln, 
§7,000; warehouse and store-building, $5,500; 
factory building, $4,000; ground, $8,000; store 
and lots, $800 ; outstandings, $6,000. Total, 
$52, 300. Liabilities, for merchandise, $9, 000 on 
current bills. For purpose of discounting bills 



184 WHOM TO TRUST. 

the firm executed a mortgage on the ground, on 
which all the mill property and store -buildings 
stand, and including stock in store, for advances 
to the amount of $10,000, which the First 
National Bank, the mortgagee, agrees to carry 
for live years. Advances at this time, about 
$8,000. The realty was already subject to a 
mortgage of $7,000, making total liabilities of 
$21, 500. Surplus, $31, 517. 46. Mr. " H. " says 
he regards the firm worth $25,000 to $28,000. 
Discount part of their bills. Mr. Meyer thinks 
by reducing stock and collection of outstand- 
ings he hopes to reduce indebtedness to bank 
to $4,000 or $5,000, soon, and then try to get 
stock in store released, and, if necessary, give 
new one on property not now subject to mort- 
gages. He states amount of advances from 
memory. Learn at bank that it exceeds $8, 000, 
but not stated how much; is still less than 
$10,000. Their property is valuable, owned 
chiefly by Meyer, and they have a good clear 
margin over incumbrances, exemptions, and 
liabilities, of several thousand dollars, and it is 
believed will work out. Meyer is regarded as 
honest. His wife owns a homestead:' ' 

According to a report of June, 1887, they de- 
cline at this time to make a statement. They 
produced an inventory, however, which showed 
a net balance of $34,000. They owe $6,000 
on building, on long time, and current 
liabilities were $15,000 in January. They 



MERCANTILE REPORTS ANALYZED. 185 

say now their liabilities are considerably 
less, but their stock is correspondingly lighter. 
Under our latest date it is stated that (under- 
stand the mortgage now stands as $7,000, but 
the actual indebtedness which it is intended to 
secure, doubtless varies, from time to time) the 
real estate is mortgaged, as heretofore reported, 
but they have a large margin over incumbrances 
and other debts. Their stock would probably 
reach $20,000, or may go to $25,000. Theypay 
all their debts promptly, do a large business, and 
make money, and do not seem troubled in get- 
ting all the accommodations wanted. 

ANALYSIS AND REMARKS. 

Personal Property, Chattel Mortgages, Ileal 
Estate. Under these heads we find the key to 
the solution of this case. While we are obliged 
for the opinion hazarded by the agency reporter, 
it is the facts he gives that are of the most im- 
portance to us. The concern stands well, but 
they have been very slow in meeting small bills, 
and large ones can hardly fare better. There is 
no danger of their failing as long as the bank is 
friendly toward them. Unsecured creditors to 
any considerable amount could not enforce col- 
lection, as the mortgagees would come in with 
their prior securities, and this operates as a 
protection to mortgagee and mortgagor as well. 
The personal property, consisting largely of 



186 WHOM TO TBTTST. 

machinery and manufacturing plant, represents 
only nominal value to us. The chattel mort- 
gage of $10,000 would fully cover stock, ma- 
chinery, etc., currently valued at $25,000. Real 
estate is not available, whatever the equities in 
it might represent on paper. 

They are good for small lines of credit, and the 
amount would have to be determined by the 
profit, and whether a house was willing and able 
to carry them. On staple goods to the amount 
of $1,000 we should have better assurance of 
prompt payment than this report vouchsafes. 

They are too well established and doing too 
good a business to fear any trouble except from 
extraordinary causes, and a claim less than 
$1,000 could be collected, or secured, probably, 
before they would allow enforcement of collec- 
tion bylaw; but in the face of this favorable 
feature, even, they are not a desirable risk. 

[No. 6.] 

G. H. Ives, Agt., Iowa. 

Groceries, etc. 

(June 9, 1886.) 

He has been in business here since March, 
1882, as agent for his wife. Came here from 
Indiana, where he was of the firm of Ives & Co. 
Was not very well regarded there, and was not 
worth, when he left, much over $1,000, which 
belonged mostly to his wife. He wrote us in 



MERCANTILE REPORTS ANALYZED. 187 

February last as follows: "I have been here 
for four years; have done a good, prosperous 
business, and am making money. I had some 
trouble last winter regarding the payment of 
my bills, but it all wore off in a short time, and 
now somebody is trying to make me trouble 
again. A few years ago I failed in business 
through a bad partner, and lost all that I had. 
Since that time, however, I have paid over 
$3,01)0 of those debts, but the y are not all paid 
yet. The money that I have in business is 
money that my wife got from home, and it 
rightfully belongs to her, and that is why I 
have agent attached to my name. I have about 
$3,000 in my business over my liabilities, and 
about $500 of my bills due; no chattel mort- 
gage on my stock. Doing a good business, 
though always slow in winter, and money hard 
to collect." 

As he states, all his property is in his wife' s 
name, and he does all his business as agent. 
He carries a nice stock of groceries, does a 
good, careful business, and attends to it closely. 
It is difficult to estimate his total clear worth, 
but he is generally thought to be worth in the 
neighborhood of $3,000, clear. He is worth lit- 
tle or nothing in his own name, always hard up 
and slow, and not considered reliable for credit. 
From Indiana we learn that his transactions 
there were questionable, and is not regarded as 
strictly honest. 



188 WHOM TO TRUST, 

ANALYSIS AND REMARKS. 

We shall be able to dispose of this case under 
the head of Doing Business as Agents, also 
Antecedents and Honesty. 

We could not safely sell him in his own 
name if we had to trust to his honesty, and in 
his capacity as agent we are at his mercy just 
the same, except so far as his wife's actual 
responsibility may afford protection. It will 
be found, probably, that should it be under- 
taken to collect a claim of any magnitude, the 
wife' s property w^ould not be get-at-able. He 
has shown by his statement that he does not 
mean to have his wife' s property used to make 
good business losses, or for the benefit of 
creditors. 

Accepting that the statement made in regard 
to the capital be true, and also considering that 
he is doing a fair business, we might place the 
total limit of his credit at $1,000. He would 
have to resort to open fraud, almost, to evade 
payment of that sum. Nearly every concern 
would risk this man for a small bill, say $50 to 
$100, and no doubt if the sum-total of his lia- 
bilities could be kept within the proper limits, 
there would be no danger. But in the same 
manner that one concern is willing to risk a 
small amount, others are willing, and an indebt- 
edness of several thousand can be run up. This 
view of the case would not warrant any credit 
at all from a conservative stand-point. 



MERCANTILE REPORTS ANALYZED. 189 

[JN T o. 7.] 
N. O. Platt, Town of 3,000 inhabitants in Iowa. 
Hardware and Tin- Shop. 
Just starting in. Is a young man, twenty-six 
years of age; married. Clerked for the last six 
years for J. & J., in this town. Good character 
and steady habits. Well liked; regarded honest 
and reliable. Intends to carry stock of about 
$2,000. Claims to have saved $900 out of his 
salary, and this is corroborated by former 
employer. A stove house and a hardware 
house, he says, have offered to carry him for 
from $1,200 to $1,500. Prospects deemed fair. 
JN"ot a practical tinner, but understands that 
branch well enough to run it. Wife is daugh- 
ter of well-to-do farmer in the country. 

analysis and remarks. 

All the requisites to a successful career are 
furnished here. The fact that two large houses 
are willing to give him a line of credit, as 
stated, is an indication that they think well of 
him from a personal stand-point. For any ordi- 
nary credit in keeping with his business, he is 
a good risk. Although his capital is small, he 
stakes all he has and enough to make him care- 
ful in his management. See Capital. 

Having never managed business for himself, 
the creditor takes some risk in the direction of 
what his development may be. A man may 
possess excellent qualities of mind and heart 



190 WHOM TO TKUST. 

as clerk, or under someone else, and yet not be 
able to make a success of his own business. In 
fact, cases of this kind are not rare. For men 
to be their own "bosses " is sometimes a dearly- 
bought privilege. Other conditions being fa- 
vorable, however, we are justified in taking 
chances on this one element of doubt. 

[No. 8.] 

B. C. Davis. Town of 10,000, Ohio. 

Furniture, Notions, Cigars, etc. 

(May, 1888.) 

Just starting in business, and a stranger here. 
He makes the following statement: ' ' Have been 
in the sewing-machine business for the past ten 
years and made some money, which I invested 
in real estate in the town I came from. Prop- 
erty consists of store-building and lot, worth 
$10,000. Mortgaged for $2,500. I am going 
to sell this property as soon as I can and use 
the money in the business. Have no other 
property excejDt household goods. I intend 
carrying a stock of $1,500." 

Was formerly located at M , and under 

date of June 8, 1888, it was learned that he 
owns a store-building, but not worth nearly 
what he claims. His business was selling 
machines, and these were sold to him on com- 
mission. Not known to have any responsibility 
beyond his equity in real estate. Nothing 
known of his character in particular. 



MEECANTILE REPORTS ANALYZED. 191 

ANALYSIS AND REMARKS. 

The only thing we have here to base credit on 
is a possible equity in Real Estate. We may 
dismiss this case off-hand. Let him first sell 
his property and be able to show a basis 
for credit. As the matter stands now, he 
has neither capital nor experience, and of his 
ability and character, no estimate can be 
formed. 

[JS T o. 9.] 

Y. W. Young. General Store. 

Town of 2,000 inhabitants, Illinois. 

Commenced business recently. Age twenty- 
two; single. For several years brakeman on rail- 
road. Previous to that he was in a store for a 
short time. He has no means of his own to speak 
of. Mrs. Y. is quite well-off, and the capital 
comes from this source. Calculates to carry 
small stock, from $1,500 to $1,800. He states 
that his mother will put in $2,000 for him as 
fast as the business warrants it. Is a sober, 
industrious boy, attentive to business, and 
family well regarded. His purchases so far 
amount to $1,200. Paid cash $800, balance 
bought on credit. 

ANALYSIS AND EEMAEKS. 

. This is one of those cases which we find 
under Capital; also, Experience, Business Edu- 
cation, Character, and Habits, Age, Ability, 
Competition, etc. In fact, the risk is equally 



192 WHOM TO TRUST. 

great in every direction. There is absolutely 
nothing to recommend him for credit. His 
character and ability are undeveloped; experi- 
ence, he has none. His application and devo- 
tion to business, for one of his age, is no guar- 
antee of success, as a rule. So far as capital is 
concerned, the mother will advance it probably 
as long as she sees the business is prosperous. 
If not a success and there is danger of failure, 
she will step in as a preferred creditor in some 
way for the money advanced. The only way 
to sell him, if he wants credit, is on his mother's 
personal guarantee of payment, until such time 
as he shall be able to show his capacity as a 
manager and business-man, and also show 
evidence of establishing himself on a good 
footing. 

[No. 10.] 

A. Van Slow. Iowa. 

Grocer. 

(September, 1883.) 

Mr. Van Slow states in November, 1887, that 
he is also of the firm of A. Yan Slow & Son, at 

W , where he has $4,000 invested, and says 

that his stock here is worth $5,000, and that he 
has $6,000 in good book accounts; also says his 
dwelling is in his wife's name, and that he 
owns a house and lot here worth $900, and has 
lands in Michigan worth $5,000, and says that 
$1,500 will cover all he ow T es. Some good local 



MERCANTILE REPORTS ANALYZED. 193 

authorities think the foregoing statement is 
substantially correct; speak well of Mr. Yan 
Slow personally, and look upon him as a good 
business-man. Others say, however, that he 
has failed once or twice, and intimate that he 
has been assisted by bank here, and were also 
under the vague impression that he is responsi- 
ble to the bank for a portion of what he has; 
for this, however, we are unable to find any 
reliable authorities, and from the best informa- 
tion obtainable, find that aside from being a 
little loose in business matters and somewhat 
inclined to spread out, that Mr. Van Slow is a 
fair manager. Good local authorities think 
him worth from $7,000 to $8,000, clear, and tell 
us that he has credit about home for his busi- 
ness wants, and that no complaints are made 
in relation to the manner of his payments. In 
a report of March, 1888, it is stated that he is 
doing about as usual. Think trade is pretty 
dull, and that he is indebted $4,000 or $5,000, 
but regarded perfectly good still. According 
to our latest reports, he has been running along 
about the same for the past year, and rather 
hard up; however, he is doing a good business 
and can learn of no collections against him this 
summer. He has been refused credit in some 
quarters, we learn, on account of slow pay- 
ments, but others are willing to put up with his 
methods, so that he has no difficulty in getting 
all the goods he needs. 

13 



194 WHOM TO TRUST. 

ANALYSIS AND REMARKS. 

Every wholesale house in his line of busi- 
ness knows Mr. Yan Slow and his methods. 
His reputation is fully established as being a 
slow customer. He is undoubtedly good for 
what he owes, or may owe in the future. Those 
who sell him will keep him within proper lim- 
its, so that his indebtedness will be kept inside 
the " danger line." Though considered good, 
his credit is not unlimited by even those with 
whom he deals. 

Punctuality and Old Customers will cover 
his case. If we are blessed with a good stock 
of patience and can afford to give six months, 
on thirty or sixty-day goods, this man will do 
to sell to, and his patronage can be relied 
on as long, and to the extent that it may be 
desirable. He is not hard to please, is not a 
close buyer, and if the goods he buys afford 
profit enough to pay for time and collection 
charges, possibly we may sell him; but we 
must not get too many of his kind on our 
books. 

So far as eventual payment is concerned, that 
can be enforced; but, even the law can not 
secure our money for us promptly. He will 
generally take advantage of the law's delay, 
which is from thirty to sixty days, and he can 
also take the benefit of the "stay -law," which 
gives him four months, additional time, and in 
some States twelve months. This compels him 



MEECANTILE KEPOETS ANALYZED. 195 

to secure the debt, but does not give us the use 
of the capital tied up. 

In giving this man credit, it must be borne in 
mind that his account can not be "banked" 
on. If many such would be ruinous to the 
creditor, as will be conceded, it follows that 
even one of the class can not be of benefit, and, 
consequently we are better off without the 

" Van Slows." 

[JSTo. 11.] 

Adams, Beowist & Co., Colorado. 

Hardware and Implements. 

(May 12, 1888.) 

The firm is composed of C. B. Adams, C. D. 
Brown, and D. E. Clark. The business has 
been established some four or live years, form- 
erly as A. & B. , later on, in 1885, changing to 
A., B. & Co., with A. E. Davis comprising the 
company. In February, 1888, we have A. and B. 
alone, who, in April, admitted Clark, and the 
style again changing as formerly. They are 
all married men, aged thirty, forty, and forty- 
five. They have maintained a very good credit 
formerly, but in the middle of 1887, they were 
financially embarrassed. In October, 1887, 
they write as follows, to our request for a state- 
ment : " We have been hard up on account of 
slow collections, and in one or two places have 
allowed drafts to be returned, and have written 
to the parties to explain matters. There is no 
cause for alarm, and parties that we have asked 



196 WHOM TO TEUST. 

for extensions have readily granted the favor," 
and they expected to have better collections, 
and plenty to pay their debts. In February, 
A. was reported to have homestead property 
worth $7,000, and B. had homestead and lot, 
valued at $1,500, and also other property, con- 
sisting of one farm of 160 acres of land, also 
having invested in the business $25,000. Also, 
were carrying an average stock of $22,000. 
At this time they appeared in better financial 
state, and no complaints were heard regarding 
payments; also, keeping a bank account with 
three different banks. Under date of April 8, 
1888, A. & B. write: " That they have recently 
admitted Clark to copartnership, which expires 
live years from date, and at this time claim a 
net capital in the business of $25,000." We 
learn that Clark is a man of good character 
and habits, and is reported to have put in the 
concern, in cash, $7,000, and is possessed of 
some outside means. Locally, the concern, at 
the present time, are considered as being in 
fair shape, and are deemed worthy of their 
moderate business requirements. Additional, 
June 15, 1888: Do quite a wholesale business 
with the smaller places. Brown traveling most 
of the time. Claim to be doing at the rate of 
$250,000 per annum. Liabilities not ascertain- 
able. Handle some goods on commission. 
Hear of no complaints. Learn they are 
indebted to one bank $5,000. 



MERCANTILE REPORTS ANALYZED. 197 
ANALYSIS AND REMARKS. 

There is no particular flaw to pick in this 
statement, except that it fails to give the most 
essential facts necessary to be known, viz. : the 
amount of liabilities and resources. It is known 
that those who have had dealings with them 
in the past, have had trouble and delay in col- 
lecting. Their reputation for punctuality is not 
good, and how far the new partner's money 
may help them is difficult to say. Eight thou- 
sand dollars to a wholesale house would not go 
far, especially when it is already embarrassed. 

Their credit seems to be good with certain 
houses to the extent of from §6,000 to $8,000, 
but they are presumably in possession of facts 
which the report fails to give. On the report 
itself, $1,000 on sixty days would be a liberal 
credit for any house to make. The conservative 
house would keep considerably inside of that 
amount, or refuse altogether, without further 
facts and figures, which they decline to furnish. 
(The mere refusal, however, of parties to give 
statements, does not mean absolutely that they 
are " shaky," or can not make a satisfactory 
exhibit. Some refuse because they feel inde- 
pendent, and ask no favors, others because they 
are pig-headed). It is reasonable to suppose, 
obliged as they are to ask credit, that this 
concern would cheerfully make an exhibit. 
Their refusal leaves us to draw our own con- 
clusions. 



198 WHOM TO TKTIST. 

[No. 12.] 

John Smith, Town of 3,000 inhabitants, near 
St. Louis, Mo. 

Retail Grocer. 

Commenced this business five years ago; firm 
was then Smith & Co., the "Co." being his 
father-in-law, a well-to-do farmer, who retired 
two years ago from the business. Under Smith 
& Co. the firm was regarded good, and enjoyed 
a first-class credit, although the habits of Smith 
were not good, and this, it is presumed, caused 
the father-in-law to drop out. He declines to 
give a statement. His stock is estimated at from 
$4,000 to $5,000. Does a large credit business 
with the farmers, and not considered a sharp 
collector. No estimate can be made of liabili- 
ties, which he says are for current bills only. 
Considered responsible for a moderate amount. 
Hear no complaints. 

ANALYSIS AND EEMAEKS. 

The above report was obtained by a Chicago 
firm to determine credit on mail order received. 
The responsibility of the party would seem to 
be sufficient for a moderate credit, but the 
question comes up: Why does he go out of his 
way to buy goods? He can buy the same goods 
as cheap in St. Louis, at a saving of time and 
freight, and that would, naturally, be the place 
for him to buy. Men do not go out of their 



MERCANTILE REPORTS ANALYZED. 199 

way to pay more for goods, or place orders to 
their evident disadvantage, unsolicited in par- 
ticular. This case clearly comes under the 
head ol Miscellaneous Information. If the 
facts were known, as they probably are to those 
who have heretofore sold him, it would un- 
doubtedly appear that Smith's credit is no 
longer good where he is best known. Our 
thorough system of working the trade by per- 
sonal solicitation gives a "good dealer" hardly 
any chance or excuse for seeking new alliances 
by correspondence, especially on staple lines of 
goods. We may safely put it down that if this 
man' s trade was worth having, it would be se- 
cured by those houses to whom it legitimately 
belongs. 



200 WHOM TO TEUST. 



CREDIT IMPLIES EISK. 

After reading the foregoing reports, which we 
may regard as applications for credit, for such 
they are in fact, or after examining any number 
of others as they come before ns in the regular 
conrse of business, the question of ' ' whether to 
sell or not to sell, ' ' is indeed a puzzling one, very 
often. The doubts and misgivings of the man 
of no particular experience in determining such 
questions are so clearly portrayed in the follow- 
ing lines, On Credit, that I consider them enti- 
tled to a place right here : 

To sell or not to sell? 

That is the question. 

Whether it is better to send the goods 

And take the risk of doubtful payment, 

Or to make sure of what is in possession, 

And, by declining, hold them. 

To sell; to ship; perchance to lose — 

Aye, there's the rub ! 

For when the goods are gone, 

What charm can win them back 

From slippery debtors ? 

Will bills be paid when due ? 

Or, will the time stretch out till crack of doom? 

What of assignments, what of relatives, 

What of uncles, aunts, and mothers-in-law, 

With claims for borrowed money? 

What of exemptions, bills of sale, and the compromise 

That coolly offers a shilling a pound; 

And of lawyers' fees 

That eat up even this poor pittance? 



CREDIT IMPLIES RISK. 201 

Yet sell we must, 
And some we'll trust. 
We seek the just, 
For wealth we lust; 
By some we're cust; 
And stocks will rust ; 
But we skip the wust, 
Or we'd surely bust. 
— British and Colonial Printer and Stationer. 

Tlie term credit implies that we have parted 
with something of value, and for which value is 
to be given at a future time. It is not convenient 
or even possible for the buyer of the property 
to give other value in exchange, on the spot, and 
so we resolve to take the chances on what time 
may do. What it will do, of that we can not 
be absolutely certain. There is, then, a degree 
of uncertainty which attaches to all credit trans- 
actions, some more and some less, and to deter- 
mine these varying degrees of risk, ranging 
from apparently "no risk to all risk," is where 
the critical task comes in. 

But we need not be without our bearings. 
The sailor, with his chart and compass, though 
in the middle of a tempestuous ocean, is not 
altogether ' ' at sea. ' ' By making use of the aids 
at his command, and the experience of others 
before him, in locating the danger-spots, his 
risk is reduced to a minimum quantity. 



202 WHOM TO TEUST. 



INVENTORY VALUATIONS. 

There are safe and unsafe methods of doing 
business, as there are right ways and wrong- 
ways of doing things in general. We refer now 
to taking stock, or inventory. The difference of 
opinion as to the proper course to be adopted 
in this matter seems to be very trifling; but the 
diversity of practice is very great. Strange as 
it may seem that people should willfully 
deceive themselves, it is nevertheless a fact that 
self-deception is of every-day occurrence among 
business-men. There is a weakness in our 
human nature which shows itself in a desire to 
appear for more than we are, and this holds 
especially good in a financial sense. Nor is the 
desire restricted in its effect on others, simply, 
but it operates with equal force on our own 
minds. Very few men are willing to gauge 
their possessions by a cash standard. Even 
when this is ascertainable, they hope to realize 
more, and accordingly place a iictitous value on 
them, which the future may or may not bear 
out. No deception is so harmful as self-decep- 
tion to the man of business in the matter of 
dollars and cents. 

We come now to the question, what do we 
take an inventory for at stated intervals, as is 
the custom? First, because we desire to Tcnoio 
how mucli we are worth. For a business-man, 



INVENTORY VALUATIONS. 203 

a knowledge of his condition is necessary in 
order that lie may conduct his affairs intelli- 
gently and with safety. Secondly, it is desira- 
ble to know whether the business, for a given 
period, has been profitable or otherwise. The 
last inventory, compared with the previous one, 
will indicate this. To know whether a business 
has been successful or not for the previous 
twelve months is of the utmost importance. To 
continue a business that is unprofitable is not 
to our interest, therefore a knowledge of such 
fact would determine us either to retire from it 
or devise ways and means of remedying the 
evil. 

But, what is our property worth? In a strict 
sense, it is worth what we can realize from it in 
money, whenever it may be desired to convert 
it. Money is the medium of exchange, and is 
our standard for measuring property of what- 
soever description. This might mean a "forced 
sale" valuation, but that is not demanded by 
even the strictest rules of business practice. 
What can be realized from the property in the 
ordinary course of trade, or what it can be 
duplicated for, furnishes a fair and safe basis 
of its worth. A stock is worth what it would 
cost to replace. It may be worth more or less 
a month hence, but all subsequent variations in 
value enter into the following year's profit or 
loss account, or inventory. 

The plan followed by conservative houses is 



204 WHOM TO TRUST. 

to appraise their stock, personal and all other 
property, at the lowest cash market value. 
Some are still more conservative, and give goods 
credit for cost only when that is below the mar- 
ket, and at market value only when that is 
below cost. The first plan is safe, but the sec- 
ond is safer, and as no injury is done to the 
owners or anyone else, it might commend it- 
self. The aim should be to appraise our prop- 
erty in such a manner, that, if we should sub- 
sequently decide to retire from business, that 
we should realize the full limit of our calcula- 
tions. How many do this? 

So far as ascertaining the annual profits is 
concerned, it is immaterial how the inventory 
is figured, so long as a uniform system prevails 
from one year to another. 

Where the greatest mistake is made, how- 
ever, and where the greatest self-deception is 
practiced, is on old stock, goods out of date, 
broken assortments, and' ' odds and ends ' ' gener- 
ally, and unless great care is exercised, a large 
quantity of these will be on hand year after 
year. To take these at cost, as is not infre- 
quently done, is unsafe and unbusiness-like. 
They have an auction-house or "job-lot " value, 
and the proper thing to do is to ascertain that 
before each inventory, by converting them into 
cash by auction or job-lot sale. Many old and 
reputable houses, after doing business for a 
life-time, and thinking themselves well-off, 



INVENTOKY VALUATIONS. 205 

have found, on winding up, that they were 
comparatively poor, or altogether bankrupt, 
from no other cause than giving a lot of rubbish 
a fictitous value which a money standard would 
not warrant. 

When property consists of a manufacturing 
plant, and is partly composed of machinery, 
tools, patterns, fixtures, etc., the following 
plan is largely adopted in regard to values: All 
the machinery, tools, etc., are charged to ma- 
chinery account, at cost. Labor expended in 
putting them up, fitting and repairing, is 
charged into expense account directly. At the 
end of each year the machinery account is 
credited with a percentage — say 10 per cent. — 
for wear and tear and depreciation. If the 
business was closed out the first year or so, this 
method would not cover the depreciation, but 
in carrying it on permanently, we can see that 
in ten years the first year's investment would 
stand canceled on the books. Of course, even 
second-hand machines and tools have a value, 
and when this is reached, the discounting pro- 
cess is stopped. It is simply aimed to arrive at 
a fair valuation, and at which the property 
would be convertible. 

But the property of a merchant or manufact- 
urer most difficult to appraise at its actual 
value, consists of Accounts and Bills Receiva- 
ble. There are few accounts that we can be 
absolutely sure of. Those which we look upon 



206 WHOM TO TRUST. 

as the best, sometimes turn out a loss, and the 
more doubtful ones come in all right. In order 
not to be misled in our calculations of what is 
due us, and what will be paid, we may classify 
our accounts, etc., and treat each class separ- 
ately, by a general average, such as our past ex- 
perience indicates. We divide them into three 
classes, viz.: 

(1) Accounts and notes which have been 
found to be uncollectible after exhausting all 

the means at our command. These should be 
charged up to profit and loss account and ex- 
punged from the ledger. 

(2) Accounts against estates in the hands 
of assignees and receivers. These should be 
charged, in part, to profit and loss account. 
We may, with tolerable safety, depend on real- 
izing one-third of these ; the other two-thirds 
charge up. This is by no means an under- val- 
uation. 

(3) Accounts past due, in the hands of at- 
torneys for collection. This refers to such, 
where the responsibility of the debtors has not 
yet been ascertained. They are past due, and 
the ordinary methods of securing payment have 
failed. They may or may not be collectible by 
law. Some of these can be collected in full, 
others in part, and others not at all, and it is 
impossible to tell which is which. Charge 50 
per cent, of these to profit and loss and you will 
not be far out of the way. It is assumed here 



INVENTORY VALUATIONS. 207 

that all accounts are placed promptly in the 
lawyer' s hands when not settled within a reason- 
able time after due. In class 3 only i ' live ' ' ac- 
counts are contemplated. 

For convenience, accounts under class 3 may 
be transferred to " Suspense Account," and 
50 per cent, of the total be charged to profit 
and loss. This leaves us 50 per cent, of their 
face value to inventory. The same may be 
done with class 2, Profit and Loss Dr. to Sus- 
pense Account 66f per cent., leaving 33|- per 
cent, to inventory as available assets. 

Because accounts are charged up to profit 
and loss and balanced on our ledger, does not 
signify that we are to lose sight of them. A 
profit and loss ledger, independent of the reg- 
ular books, is usually kept, and old claims are 
thus looked after. Some of these are resur- 
rected occasionally by watching them and 
keeping track of the movements of our defunct 
debtors. An entry now and then on the 
credit side of profit and loss does not mar the 
looks of that account. 

The bearing that this chapter has on 
''credits" will be apparent when it is con- 
sidered that, as a rule, we rely almost entirely 
on the applicants for credit themselves for the 
estimates placed on their capital and resources. 
Whether the estimates and figures are made on 
a basis of actual value, or whether unsalable 
goods and worthless accounts make up the sum 



208 WHOM TO TRUST. 

total, largely or in part, is beyond our means 
of ascertaining. But appreciating the fact that 
over-estimates are the rule, and fictitious valua- 
tions are not infrequent, more from lack of 
good business methods than from bad inten- 
tions, perhaps, the necessity becomes manifest 
of making allowance for a liberal, 
shrinkage. 



PAST-DUE ACCOUNTS. 209 



PAST-DUE ACCOUNTS. 

Out of every ten accounts that are lost, it is 
safe to estimate that only one is lost before 
maturity. The other nine were still good at 
maturity, and if the proper effort had been 
made at the time to collect, they could have 
been saved in the majority of cases. The fact 
follows, then, that we make nine-tenths of our 
losses, approximately, by allowing accounts to 
run, either by voluntarily extending the time, 
or by suffering them to drag for one reason or 
another. 

Usually, it is for reasons of so-called policy 
— policy in other respects; but in no direc- 
tion will it be found to serve our interest or 
accomplish a desired purpose. 

We are confronted with the fact, of course, 
that mercantile bills or open accounts are not 
looked upon like an obligation to a bank that 
must be paid on a certain day and by a certain 
hour; at any rate, comparatively few merchants, 
taking them all in all, have educated themselves 
up to this standard. Where we find one that 
has, we find Hve who have no idea of meeting 
even a note on the day it is due. 

But accepting things as we find them in refer- 
ence to accounts, until they have become due, 
they cause us no anxiety, nor, in fact, have we 
any claim, in law, against our customer until 

14 



210 WHOM TO TRUST. 

then. It is only when the account has matured 
that the critical time comes for the creditor, 
and, even then, not till some days have elapsed 
for the debtor to make his payment. On a 
note there is three days' grace, and it is either 
honored or dishonored; but on an open account 
no fixed time governs the case. The debtor 
may take ten or twenty days' grace without our 
consent and without our feeling justified even 
in making a peremptory demand. This much 
extra time we give and have to give, almost 
unavoidably, before any anxiety or doubt is 
awakened in our minds as to the goodness of 
the claim. After that, a series of letters are 
written demanding settlement, and more time 
is consumed, resulting in this, that about 
thirty days are lost, after maturity of a bill, 
before the fact is ascertained whether non- 
payment is due to carelessness, lack of good 
business methods, unwillingness, or inability to 
pay; and which of these four reasons applies, 
is not always determinable even then. 

By the bank-draft system adopted by most 
houses, this loss of time can be materially 
shortened. Accounts not paid within a couple 
of days after due are drawn for at sight. If 
not accepted on presentation or paid when due 
after acceptance, it is the bank's duty to return 
the draft at once. If the bank attends to its 
collection department promptly and on bank- 
ing principles, we either have our money or the 



PAST-DUE ACCOUNTS. 211 

draft returned to us inside of ten days or less, 
and the loss of time is, therefore, small.* 

Now, then, default of payment having been 
made and the usual methods having failed to 
bring payment, we are forced to these conclu- 
sions: Either our judgment was poor in making 
the credit in the first place, or the premises on 
Avhich judgment was based were wrong, or 
Ave acted carelessly and- without sufficient cir- 
cumspection. We frequently trust men whose 
actual capital and financial status would not 
entitle them to credit. We do this very often 
on the strength of reported good business qual- 
ities, a past record for promptness, and other 
favorable conditions. But when the test comes 
and we find ourselves disappointed, the party 
then has forfeited everp claim to credit and 
confidence. In cases of this kind, no time 
must be lost in securing claim . Although col- 
lection might not be enf orcible by law for lack 
of tangible property, yet the debtor has a fair 
business, and he can not afford to allow his 
standing and his prospects to be injured, and 
so by p ashing our claim energetically, the 
chances are in favor of getting our money. 

In the majority of cases, we can not know why 
bills are not met. To ascertain this at once, is 

*Note. — Where banks are called upon only occasionally to 
make collections for us, inclose postage for return of unpaid 
drafts. It is only right to do this, and the service will be 
more prompt. 



212 WHOM TO TEUST. 

of the utmost importance, and to this end the 
best and latest information should be obtained 
in order that we may decide quickly whether 
our claim would be jeopardized by the necessary 
delay in trying "moral suasion." Lawyers' 
services absorb our profits and cause expense, 
and we are eager, of course, to save the one and 
avoid the other; therefore, when we can satisfy 
ourselves, beyond doubt, that an account is col- 
lectible by law, we may, in these exceptional 
cases, defer legal action for a little time while 
making our best efforts to collect without legal 
process. 

But these cases will be found rare. After 
diligent inquiry we are generally in doubt as to 
the real cause for non-payment; but whatever 
the reason may be, it is tantamount to the 
debtor' s untrustworthiness thenceforth. Delay 
would be dangerous, and as the customer is no 
longer a desirable one, our only policy is that 
which our safety demands, viz. , to enforce col- 
lection by law at once. 

I have divided our delinquent debtors into 
three classes, viz.: Those of Insufficient 
Responsibility, Doubtful Responsibility, and 
Undoubted Responsibility. The first and sec- 
ond brook no delay, for it is better to lose our 
profits in fees to the lawyer and save the prin- 
cipal, than by delay to lose both. In the third 
class, delay not being attended with any 
apparent risk, we may try to save expense, and 



PAST-DUE ACCOUNTS. 213 

endeavor, by the ordinary tactics, to make our 
claim. Our course, with reference to this class, 
will naturally be dictated by policy, or by our 
own necessities; but this we must do: Have a 
time and a day set when payment will be made. 
Insist upon this, as you have a right to; and, 
secondly, insist upon punctual discharge of the 
promise. If this promise is again violated, 
disregard further excuses, however plausible, 
and get your money. 

It may seem impracticable or impolitic to 
some to follow the rules laid down here. They 
are correct, however, not only in theory, but in 
practice, as many houses can testify from their 
own experience. The more and the nearer we 
can bring ourselves to work on certain rules 
and principles, and stick to them, keeping aloof 
from all personal influences and appjeals to our 
sympathies — which in business shows only 
weakness, after all — the smaller will be our 
loss, and this is applicable, not alone to credits, 
but to business in general. 

It is an established law that c ' we act in the 
line of least resistance." To make our own 
collections promptly, so as to be able to pay 
promptly, requires constant and timely ex- 
penditure of energy, and is, therefore, in the 
line of greatest resistance — just the opposite of 
our natural inclinations. It can not be denied 
that nearly all our customers would be ' ' slower 
pay" than they are if we consented to the 



214 WHOM TO TRUST. 

arrangement. In a great measure, therefore, we 
are responsible, as creditors, for the habits they 
fall into, and the responsibility involves more 
than a bad habit in them — it involves our capi- 
tal and our welfare. As between two houses 
that could be named, having bills maturing on 
the same day with the same customers, it would 
not be difficult to say, if only one house could 
be paid on time, which would get the prefer- 
ence. It is a question very largely of the kind 
of impressions we make on those who are our 
debtors, as to- the respect they entertain for our 
methods and the degree of effort they feel 
themselves called upon to make for us. 



COLLECTIONS. 215 



COLLECTION'S. 

A synopsis of the laws of the different States 
pertaining to collections and insolvency, is 
easily obtained and digested. The statutory 
laws on assignments, receiverships, exemp- 
tions, mortgages, limitations, attachments, 
chattel mortgages, etc. , with which the busi- 
ness-man is mainly concerned in the collection 
of his accounts, are much the same in all the 
States, and are largely copied from the old 
English Common Law. Arrest and impris- 
onment for ordinary debt is done away with, 
and while this may operate, in some instances, 
with too much leniency, and more than was 
contemplated, yet, in the main, it shows evi- 
dence of advancement, and is in keeping with 
our more modern conceptions of humanity and 
sympathy for the unfortunate. 

In Germany, France, and other countries, 
rigorous methods are still enforced against 
bankrupts, and imprisonment for debt is not a 
rare occurrence. In England, though the laws 
as they stand are quite as severe, they are not 
as rigorously enforced. Imprisonment for debt 
must be admitted to be a relic of despotism, 
but it is gradually being expunged. Where 
commerce is least developed, the clause is most 
enforced, and where we find the highest devel- 
opment, it is least enforced. 



216 WHOM TO TRUST. 

To imprison the man who is in onr debt, and 
who is nnable to pay; to shnt him np and deny 
him the opportunities of doing anything to 
help himself or ns, does seem to be the most 
idiotic proceeding imaginable. Besides the 
inhumanity of the practice, it is so thoroughly 
opposed to our own interests, so thoroughly 
"uncommercial" for people engaged in com- 
merce, that we wonder it survived as long as it 
has. An Indian, who was incarcerated in jail 
in Albany, in default of payment of a certain 
number of beaver-skins (then taken as cur- 
rency), made the common-sense remark, which 
strikes home, " That the prison was a mighty 
bad place to catch beaver." 

One or two centuries ago, the laws and' 
statutes were looked upon as fixed stars, and 
therefore unchangeable. Every interest and 
act of man had to conform to the law as it 
existed. The view would seem to have been 
held that laws were made first, and that man 
came afterward and accepted them, just as he 
does Nature's laws. 

But happily we have changed this. At the 
present time we make and repeal our laws, and 
adapt them to the progressive wants of man, 
and of society, with a view to promoting the 
welfare of the community, and by thus revers- 
ing the spirit of our laws, we have made a 
decided move onward and upward. 

Our legislative and judicial departments per- 



COLLECTIONS. 217 

form their functions no longer arbitrarily, but 
with due reference to the manifold industries 
in which man is engaged. It is no longer a 
question of what does the law allow us to do, 
but what laws do we need, and that will best 
subserve our interests, either in protecting or 
developing. 

In proof of what has been stated here, we 
may cite the Bankrupt law, which at three 
different periods in the country's history was 
put into force, and each time, after having 
given the relief sought, it was repealed, and 
both the enforcement and the repeal were 
equally wise and expedient. At each of these 
periods, the provisions of the Bankrupt law 
were invoked for the benefit of the debtor class, 
who, by severe panic and depression, had 
become hopelessly involved. The interests of 
commerce, its life and vitality, demanded 
relief for a large number of helpless, though 
otherwise active and useful, members of the 
business community. That this law did not 
operate, and never will, for the benefit of the 
creditor class, directly, has been fully demon- 
strated, nor has that ever been its purpose. 

Efforts have been made, at various times 
since its repeal in 1878, to have a permanent 
Bankrupt law passed, but with no success. 
The defeat of the movement may be taken as 
indicative of an adverse sentiment among 
business-men. In ordinary times it can sub- 



218 WHOM TO TRUST. 

serve no good end. Its administration, as 
experience proves, is not economical, but 
wasteful of the debtor's assets. Its operation is 
subversive of the creditor' s interests, instead of 
being beneficial, and they are better protected, 
or rather, can protect themselves better, under 
the State Statutory law. 

Practically, the debtor enjoys all the advan- 
tages under the State laws, that the Bankrupt 
law can confer. If the insolvent of to-day can 
show good cause why he should be discharged 
from his debts, after paying all that he can, he 
usually finds no difficulty in getting an honor- 
able discharge. The man who is entitled to it 
(and this includes all except the downright 
thief), can safely depend on the acquiescence 
of his creditors in any reasonable proposition 
for settlement. 

Under our State laws it is " first come, first 
served." The creditor who gets ahead with his 
claim takes the persimmons. The wide-awake 
merchant finds no fault with this arrangement. 
(The law of Minnesota undertakes to prevent 
preferences being given or obtained, but in 
other States no such pro vision is made.) Since 
the creditor's safety rests, then, on his vigil- 
ance, it behooves him to be on the alert. Good 
management of the collection department has 
its reward under our present system, which is 
not the case under a bankrupt law. Under 
this, from and after the time that insolvency 



COLLECTIONS. 219 

can be established by any act, all the creditors 
are supposed to have equal rights, and prefer- 
ences or securities obtained subsequently are 
held to be unlawful. 

Whether we are extending credit under our 
State laws, or the Bankrupt law, concerns the 
larger houses more particularly, and the latter 
operates especially against these. Many of the 
wholesale firms carry their customers for large 
amounts, in consideration of the latter 1 s trade, 
and this arrangement is for mutual benefit. It 
ties the customer to some one house, and the 
relations between buyer and seller are of a very 
close and confidential nature. Whenever the 
creditor has reason to become uneasy, his claim 
is sufficiently large to demand security, and he 
usually gets it. The smaller creditors are 
left out " in the cold," in case of a foreclosure 
by the secured creditor. This happens every 
day. But under the Bankrupt law, the larger 
creditor could not secure himself, to the detri- 
ment of other creditors, and, knowing this, he 
would feel the need of greater conservatism in 
extending credit. 

So, all in all, our State laws may be consid- 
ered fully adequate to our business needs and 
protection, and the law of " the survival of the 
fittest" comes into play. 



220 WHOM TO TKUST. 



COLLECTIONS— METHODS EMPLOYED. 

The large and constantly increasing number 
of collection agencies and lawyers, who make 
a specialty of collecting past-due accounts, 
would indicate that there- is an immense field 
for work in this line. The best way is not to 
have to employ them ; but since their employ- 
ment by us is unavoidable, we must seek the 
best the market affords. 

The plan of the collection agencies is to se- 
cure the addresses of attorneys in every town, 
county, and city, and your claim is sent to 
these attorneys by the agency to whose care it 
has been intrusted. The collection charges are 
usually guaranteed to be no more than if the 
claim was sent direct by you, and it is further 
guaranteed that claims coming through these 
will receive better attention. How far these 
promises are made good, depends largely on 
the agenc^v, and much care is necessary in your 
selection. In the first place, their financial 
responsibility should be unquestioned ; and, 
secondly, you should convince yourself that 
their selection of attorneys is made from the 
best ranks in the profession. 

Lists of attorneys throughout the country 
are accessible to everybody, and it is no trick to 
start a collection agency ; but it does seem 
to be quite a trick to get satisfactory service 



COLLECTIONS — METHODS EMPLOYED. 221 

from most of them. But find one, good and 
reliable, and it will save you much time and 
annoyance in looking after your claims your- 
self, besides probably securing better results. 

Where a good deal of collection business has 
to be done by houses, direct communication 
with attorneys has been found preferable. 
While this method involves more work and at- 
tention at your hands, it has the advantage of 
making all instructions direct instead of 
through an intermediary, and the attorneys 
will work for you just as cheaply and just as 
efficiently as for the agencies, if not better. 

By becoming a subscriber to a good agency, 
it furnishes you a list of attorneys, both for col- 
lecting and reporting. The experience of every 
house proves that quite a large percentage of 
claims is lost by dilatoriness on the part of at- 
torneys. This, however, is quite as much the 
fault of the client as of the attorney. If the 
attorney takes your claim and commences suit 
instanter, he is liable to be blamed and charged 
with an inordinate desire to make costs and fees, 
especially if he accomplishes^nothing by it. In 
the absence of special instructions, therefore, 
he will always try to clear himself from any 
imputation of that kind. 

When an account gets into such shape as to 
require the services of an attorney, the inference 
is that you have waited as long as you care to, 
and safety warrants. In either case you want 



222 WHOM TO TRUST. 

payment of your claim. You have given all 
the time and indulgence that is deemed pru- 
dent or your own interest justifies. That 
being the case, let positive instructions accom- 
pany your claim, and these should be right to 
the point. "Collect, or if more time is asked, 
get security. If not paid or secured at once, 
commence suit and enforce collection by law 
with the least possible delay." G-o on the plan 
that when you employ an attorney it is not to 
grant further indulgence or to accept further 
excuses, but to practice the law, and the more 
summarily this is done, the better for your 
claim, always. 

We are prone to send our collections and de- 
pend on our attorneys for advice, and let them 
do as they think best. But the merchant needs 
no advice in the matter of an ordinary collec- 
tion. He is his own best counselor on the 
merits of a past-due account. It is not a ques- 
tion of law, but of bringing the law to our aid 
and getting what belongs to us. 

Positive instructions are of advantage, for 
other reasons. Attorneys are human, like 
other people ; their feelings and sympathies 
are fully as susceptible. Acquaintance, and 
often friendship, between attorney and defend- 
ant, place him in an awkward position in mat- 
ters left discretionary with him. He intends to 
do his duty by his client, but aims also to fa- 
vor the defendant as much as possible, and the 



COLLECTIONS — METHODS EMPLOYED. 223 

result is that valuable time is lost and your 
claim is often the worse for the delay. But 
whatever may be the relationship between at- 
torney and defendant, if the attorney has posi- 
tive instructions, of which fact he can convince 
the defendant, the latter can find no fault, for 
there is no room left for the use of discretion- 
ary power. Again, the attorney of your selec- 
tion may also be retained by the other side. 
This not infrequently happens. Let the in- 
structions include the request that if he can 
not, for any reason, attend to your claim as 
desired, to return it at once. 

It is sometimes a question whether a claim 
is worth incurring further exj)ense on. In a 
case of this kind your attorney may be able to 
advise you, and this will be necessary before 
you can give definite instructions as to the 
course you wish to pursue. We come too late 
with our claims sometimes, and where there is 
no prospect of making them, it would be use- 
less to waste money. Such claims, by watch- 
ing them, can frequently be made in whole or 
part, but if not, they can be put in judgment 
before they • become outlawed, if the prospects 
later on warrant the expense. 



224 WHOM TO TRUST. 



SHAEP COLLECTOES. 

We are in business to make money, and not 
simply for the accommodation of the public. 
Upon this we all are agreed, as an abstract prop- 
osition, but how is it in practice? If anybody 
should intimate that you did business for 
accommodation, the accusation would be re- 
sented, no matter how charitably-inclined you 
might be, or how philanthropic it may sound. 
You would naturally say: "If I want to do 
charity work I can do it in an easier way. I 
can dole out my money and property without 
the work and worry of business." And yet 
how many merchants, and especially retailers, 
there are who conduct their business on that 
principle. To be sure, accommodation cus- 
tomers can be found in abundance, and goods 
need not become rusty or musty waiting for 
that class. 

But that is not the way of the successful 
business-man. He looks sharp after his col- 
lections, and does not want customers who do 
not pay promptly. His goods will keep until 
he can exchange them for something beside 
uncertain accounts. He calculates that while 
he is in business he will have something to say 
about the terms of payment, etc. These he 
will make as long as the nature of the goods 
will warrant, but whoever buys them on his 



SHAEP COLLECTOES. 225 

terms, is required to meet the payments 
promptly at maturity. Houses are prone to 
carry customers because they think them 
good. On the other hand, those that are not so 
good, or not good at all, have to be carried 
because immediate collection can not be 
enforced. 

With the former class it is carrying volun- 
tarily, and with the latter, it is compulsory, 
and, to sum up, they are carrying all their 
trade and furnishing them capital. This is 
doing business on the accommodation j3lan. 

But it does not pay. There is neither profit, 
safety, nor common sense in this method of doing 
business. Even in cases where we have every 
reason to believe a customer responsible and 
undoubtedly good for his account to us, we are 
not justified in carrying him indefinitely, for 
the reason that any number of mishaps, beyond 
the control of any man, may happen, which will 
endanger our safety as creditors. Fire, Hoods, 
sickness, death, and innumerable other unex- 
pected and unforeseen things may occur, and 
are daily occurring, which, though they may 
not always result in total loss of our account, 
are yet sufficient to tie up a portion of our 
working capital, and every time we extend an 
account, it must be borne in mind that we incur 
all these risks. 

The largest and most successful houses are 
prompt in making their collections, and it may 

15 



226 WHOM TO TEUST. 

be claimed that this very feature in the con- 
duct of their affairs has made them so emi- 
nently successful. The answer might be made 
that they can afford to be independent. Yes, 
and they always were, from a very small begin- 
ning. If business-men, as a rule, both whole- 
sale and retail, would insist more on punctual 
compliance with terms and time engagements, 
it would be a blessing and a saving to creditor 
and debtor alike. 

The timid creditor gains nothing by his tim- 
idity. Let your customer understand that 
when his account is due it must be paid, and 
he will pay it unless your judgment of him 
was wrong to start with; and when he wants 
goods and you have anything to offer him, he 
will buy of you more readily than of a house 
with whom he is already in arrears. 

By letting accounts and customers run 
behind, the experience of old-established 
houses is, that you sell them fewer goods, in 
the long run, than by adopting the other course; 
but this is only one of the bad features of in- 
dulgence. 

It is a positive fact that the prompt col- 
lectors are the most respected by the trade, and 
stand highest in the community, and another 
incontrovertible fact is, that they lose no trade by 
it that is worth having. A third very valuable 
point gained is, that you can handle your busi- 
ness and your capital to the utmost advantage, 



SHARP COLLECTOES. 227 

and give } T our customers better and more satis- 
factory service. This feature alone draws to 
you the better class of trade. 

As between the easy, pay-when-you-like 
method and that of the house which insists on 
prompt payments, and fulfillment of engage- 
ments, it is not difficult to see and enumerate 
many advantages that the latter has over the 
former. To look sharp after our collections is 
one of the most essential things in business, 
and our success depends on it more than on 
any other single factor. 



228 WHOM TO TKITST. 

REFERENCES. 

References, when given by strangers to obtain 
credit from us, should be taken with a good grain 
of allowance and be viewed with great caution. 
Much credit is given on the strength of these. 
Whenever any one refers you to another, that 
other's opinion will be a good one invariably. 
Do you suppose any one would give you a ref- 
erence that would turn against him and be 
detrimental to him? It hardly looks reason- 
able. 

The party referred to usually occupies one of 
several positions, and, we may say, his opinion 
is dominated by either friendliness, indifference, 
or self-interest. When not pecuniarily inter- 
ested himself, he rarely knows the true position 
of the party seeking recommendation. Being 
under no pressure to investigate, he very likely 
looks upon the lenient and charitable side of 
the case and says all the good he can, for that is 
expected of him. He is called upon to tell the 
truth, and this he does; but he is not obliged to 
tell all he knows. We dislike to sa}^ anything 
derogatory of any man in trade, and especially 
if he refers to us and expects our good offices. 
Though ofttimes perversive of good, we may 
look upon this charitable phase of human 
nature in business as very exalted and highly 
commendable of itself. 



KEFEKENCES. 229 

If, on the other hand, the referee, or party- 
referred to, is interested pecuniarily in the 
referring party, who is a customer, we will say, 
though riot perhaps, the most desirable in 
every way, the law of self-interest is apt to 
come to the surface. If good can be said, we 
say it with great pleasure and satisfaction. If 
not so good, we say less. Our own business 
relations and safety depend upon his success, 
and the latter, again, depends upon his ability 
to get accommodations from others, and our 
cognizance of this fact prompts us to aid him 
all we can. In all this, it may be said, the 
mind operates quite unconsciously of any 
wrong-doing. 

Another feature is this: There is hardly a 
man who has not one or more friends, especi- 
ally if he is a business-man. Some one of the 
many he trades with can always be relied on to 
give a good account of him, though so far as the 
many are concerned, this would probably have to 
pass for a " minority report." A man always 
puts his best foot forward, and in giving refer- 
ences, he will be sure to give such as will bene- 
fit him. An opinion from all those he deals 
with would probably differ, and furnish a more 
correct basis to work from. 

Bank references are usually considered of a 
very high order, and place the giver very high 
in our estimation. The man who can lay claim 
to the right of referring to his banker, we look 



230 WHOM TO TRUST. 

upon as gilt-edged. But we find by experience 
that a banker 1 s opinion, as he gives it to us, at 
any rate, is very liable to be misleading. Indif- 
ference, or self-interest, also govern his state- 
ments. It is always with reluctance that 
bankers allow themselves to be used as in- 
formers or mercantile agencies. They studiously 
avoid saying anything of a disparaging nature 
of their townspeople, whether customers or 
not. That they usually know more than they 
tell, is unquestionable. 

If the banker, whose opinion you ask of a 
certain merchant, happens to be a creditor him- 
self, he will tell you that he has confidence 
enough in him to loan him money, and this he 
emphasizes in a manner so as to carry the con- 
viction that this ought to be sufficient evidence 
of his worthiness and claim to credit. Our 
minds are set at rest by this practical demon- 
stration of confidence, but in case the party 
fails soon after, what do we find? It is found 
that the banker was a creditor, possibly is a 
creditor still, but if so, he is, nine cases out of 
ten, a secured creditor, while you are not. The 
banker's confidence, after all, seems not to 
have been in the party so much as in his col- 
laterals. 

We find no fault with the banks for protect- 
ing themselves, and this is not brought against 
them as an arraignment. Every creditor would 
do the same. This is brought up merely to 



BEEEKENCES. 231 

show that because a man is a borrower at a 
bank, is not necessarily a sure sign that he is a 
safe man for us to trust. The banker, in the first 
place, is a privileged character. The borrower 
is required to make a minute statement of his af- 
fairs, and he is prepared to give it if he desires 
a loan. In regard to such statements, the banker 
also enjoys superior facilities for having them 
corroborated and their correctness substanti- 
ated. On the other hand, the merchant who 
seeks to place his goods and secure a customer 
in a mercantile way, finds it more difficult to 
get statements; they are not so eagerly furn- 
ished; in fact, we are liable to offend by the 
mere asking for them. 

Inquire of a banker regarding the standing of 
any business firm in his locality, and his answer 
will invariably be favorable; rarely unfavorable 
or damaging. Even if the house in question has 
been known to be slow in meeting its obligations 
— "well, that does not signify; everybody is a 
little slow, now." But ask the banker to 
discount the paper of this same concern, with- 
out recourse, though with a liberal commission, 
and it will be a rare exception when he is not 
out of funds just about that time. 

This simply proves the position taken, that 
men in business like to say good things of 
each other, rather than the reverse. It seems 
to do us good, to give us exceeding pleasure, to 
be able to speak well of another, particularly 



232 Whom to teust. 

when we can do so conscientionsly and by 
reason of long acquaintance and from personal 
knowledge. 

What has been stated above pertains to the 
references ordinarily given by one man to 
another, or by one house to another, and where 
singly opinions are dealt in without serious 
consideration, as is too often the case. Their 
value, however, can be greatly enhanced and 
made to perform the very best of offices, as, for 
instance, when a -customer gives us as reference 
a reputable firm, and that firm, in turn, is willing 
to allow us access to the man's ledger account 
or give us a transcript of the transactions with 
him. This procedure furnishes us with valua- 
ble data, and with these we can form our own 
and intelligent conclusions. If the transactions 
cover a long period of years they will furnish 
particularly good evidence of the party' s man- 
ner of doing business, and we can readily deter- 
mine whether his account would be a desirable 
acquisition, or not; for what is satisfactory to 
one house is not always so to another. And if 
we are given several references, and are accorded 
similar privileges in each case, we then com- 
mand information of a very superior and relia- 
ble nature. Instead of mere opinions, we are 
placed in possession of facts and figures and an 
established record, and references which enable 
us to obtain these details are invaluable to the 
credit-man. 



REFERENCES. 23S 

The importance of this class of reference has 
received recognition at the hands of several lead- 
ing lines of trade. In the Wholesale Clothing 
trade nearly all the large houses, East and West, 
have formed themselves into an association, the 
object of which is ' ' mutual protection and assist- 
ance in the matter of credits. ' ' A committee is 
appointed, " clothed " with authority to ask of 
any of the members transcripts of accounts of 
any of their customers. Not only the past 
transactions of a dealer are thus made service- 
able for our purpose, but his present liabilities 
to that particular branch of trade are ascertain- 
able. A retail clothing merchant's sum-total 
of indebtedness to the trade is arrived at with 
exactness by this system, and if his liabilities 
exceed the justifiable "limit of credit," or, if 
he falls behind in his payments at any time, 
the fact can be at once known to every member 
of the association. 

The same system prevails with the Jewelers 
and the Furniture trade; and their separate 
organizations, for mutual protection, have at- 
tained a high degree of usefulness. A bureau 
is created, and the information required by 
members is obtained by an actuary appointed 
by the bureau. To some extent other lines of 
trade make use of this method, also, but it is 
by no means adopted universally. 

It will be seen that information received un- 
der these conditions is valuable; but to create 



234 Whom to tkijst. 

the conditions first requires cooperation of 
business-houses. As a matter of fact, where 
this mutual understanding and cooperation 
exist, references cease to be of any great im- 
portance, since, with or without them, the 
standing of a new applicant for credit could, 
readily, and naturally would be looked up; nor 
would the inquiries be confined to the house 
specially referred to. 

Agencies have been established and exist 
which work on this plan, but their usefulness is 
necessarily limited. Were the universal adop- 
tion of the plan by all houses feasible, however 
(which it is not, for obvious reasons), we might 
look for great benefits and greater safety to our 
interests as creditors. The present mercantile 
reports, giving us the character, ability, capital, 
etc., of buyers, in conjunction with reports from 
the sellers, giving us the total amount of lia- 
bilities of said buyers and their manner of meet- 
ing them, would place us in position to act very 
advisedly, arid we might say, unerringly. What 
our debtors own is important for us to know, 
but what they owe is equally important, for a 
knowledge of the assets only, in itself, is not of 
any particular value. It is an exact knowledge 
of the proportion of assets to liabilities, in the 
case of our debtor, that must be arrived at. 

There exists among the trade at large a com- 
mendable degree of courtesy. Not only in 
respect to honoring references, which, of course, 



REFERENCES. 235 

it is a duty we owe our customer when he refers 
to us, but among houses, generally, we find a 
disposition to be of service to each other in giv- 
ing information, even without the special privi- 
lege that a reference confers; and this fraternal 
feeling can not be developed too much. 

That the practice of giving and taking refer- 
ences saves much time and perplexity in the 
ordinary course of business, is undeniable; but 
in our acceptance and use of them caution is 
enjoined the same as in accepting gold coins — 
we must carefully weigh and examine them. 



236 WHOM TO TRUST. 



COMMERCIAL TEAVELEES. 

To sell, and very often to create a market for, 
the line of goods he represents, is the forte of 
the traveling agent; but this, though done 
successfully, may after all be fraught with 
disastrous consequences to the party furnishing 
the goods and capital. With energy and ability 
as salesman, it is of the utmost importance that 
he should combine with these another qualifi- 
cation, viz. : judgment in making credits. The 
old and experienced agent becomes, by constant 
practice and contact with business -people, a 
keen judge of human nature, of men' s motives 
and honesty: but all have not reached that 
point, and some, having mistaken their calling, 
never will. Anybody can give away goods ; that 
is, make sales without regard to cost or profit, 
or by selling to irresponsible parties, and jDlenty 
of these can always be found. 

A very large jDroportion of the credits 
throughout the country are made directly by 
agents, or based on their opinions, and in a 
large measure the prosperity of most houses is 
in their hands. All shades of competency(?) 
are met with among traveling men on this head ; 
the difference between them in the matter of 
giving credit being as great as it is in their 
various other capacities. Some agents start out 
with the idea that their sole business is to make 



COMMERCIAL TRAVELERS. 237 

sales, and that it is the firm's affair to deter- 
mine the rest. Of course, the firm has the 
privilege of accepting or rejecting, bnt we 
can not afford to have men, under pay and ex- 
pense, waste their time on parties whose orders 
have to be declined. That does not pay, and it 
further indicates a great lack of a vital some- 
thing, when a representative shows such indif- 
ference to our interests. Coming in daily con- 
tact with the trade in his capacity, he is not 
only the representative of his firm, but he is at 
the moment the firm. u de facto," and not until 
he realizes this, and that on his acts and judg- 
ment depends the welfare of his house, will he 
make himself a valuable man and indispensable 
co-worker. It is the commercial traveler in our 
day who transacts most of the business of selling 
and distributing, and the authority necessarily 
given allows him all the discretionary power 
and latitude, that his principals could wisely 
exercise themselves. And this is necessary, for 
to enable our representative to do the best for 
us, he must have our fullest confidence, and be 
allowed the utmost freedom in the use of his 
faculties; and to the great body of agents all 
this is given, with mutually advantageous 
results. Of course, only those are entitled to 
such confidential consideration whose past 
services have been marked by uniformly good 
judgment and business capabilities. 
A eulogy of the traveling man is not contem- 



238 WHOM TO TEUST. 

plated, but that he forms the backbone and 
sinews of our commercial growth, and that to 
him is due, in a large measure, its rapid develop- 
ment, must be unhesitatingly admitted. This 
much is necessary to say of him, in a general 
way, and in order to arrive at a proper appre- 
ciation of his vocation, that on him devolves 
the executive part of nearly all our commercial 
transactions, and the implicit trust reposed in 
him is either for good or for harm to his firm, 
according as he is a co-worker, or not, in the 
fullest sense of that term. With respect to 
determining a buyer's claim to credit and our 
safety as creditors, the traveling agent has cer- 
tainly every opportunity afforded him for exer- 
cising judgment. Coming in personal contact 
with the buyer, as he necessarily does, an esti- 
mate of his ability, character, habits, and 
' ■ make-up ' ' generally, is made possible to a 
practiced mind. Being where the business is 
carried on, he is also enabled to make observa- 
tions of its management, the attention given to 
it, and whether, on the whole, the requirements 
necessary to success are fulfilled, or in some 
vital points overlooked or neglected. Every 
business carries to oar minds impressions, 
and even convictions, of its condition, whether 
prosperous or otherwise, and our intuitive 
senses become wonderfully alert through con- 
stant use. The same holds good of men, and 
our first impressions of them. Being, further- 



COMMERCIAL TRAVELERS. 239 

more, in the buyer's place of residence, the 
agent can obtain information of a general and 
often of a specific character from the neighbors 
and townspeople, all of which will aid him 
materially in forming his opinion. 

All these facilities are at the command of the 
agent, and should be utilized by him, to the 
end that his recommendations may be judicious, 
or that the information given by him may be 
used to corroborate agency or other reports in 
possession of his principals. 

To the man of long service on the road, advice 
is not proffered, but to the less experienced, or 
those naturally a little remiss in the matter of 
credits, as many of them are, a careful notice 
of the suggestions made in the preceding chap- 
ters will redound largely to their advantage, 
and be of immeasurable assistance to their 
respective firms. 

One of the shortcomings of the average agent 
is, that he seldom gets actual figures as to a 
customer's standing, even when a special re- 
quest is made to that effect. In lieu of a state- 
ment he will give it as his opinion that the party 
is all right, without, however, being able to give 
any specific grounds for his reasoning. His 
modesty and timidity in getting at facts are 
only equaled by the customer's incompetency 
or carelessness in keeping his books and affairs. 
In many instances we know the agent is unable 
to get a statement, for the reason that the pro- 



240 WHOM TO TRUST. 

prietor himself can only make a rough guess 
at his condition, and as for details, classifica- 
tion of property, etc. , he is quite at sea. With 
this class of merchants, if an inventory is ever 
taken, the books never show evidences of it; 
they never know their true condition from a 
monetary standard, and would be disheart- 
ened, very often, if they did know. But even 
in these cases the agent can gather something, 
if he perseveres in the right direction, and if he 
knows what points of information are of great- 
est importance to obtain. 

It is a great satisfaction and relief to be able 
to feel that an agent' s opinion can be relied on, 
and that his uniform good judgment warrants 
us in accepting his dictum in all cases, conflict- 
ing opinions to the contrary notwithstanding; 
nor can it be otherwise than gratifying to him 
to have won respect for his judgment to such 
an extent. 

In conclusion, we would say, that every trav- 
eling man should aim to make his recommend- 
ations on credits unquestioned, and his opinions 
law, in the estimation of his principals. 



INTERVIEWS VERSUS REPORTS. 241 



PERSONAL INTERVIEWS VERSUS 
REPORTS. 

We will undertake to show the comparative 
advantages and disadvantages of the two meth- 
ods in determining credit. The time was when 
every merchant found it necessary to repair to 
the markets once a year, at least, to buy his 
spring or fall stock of goods. If he was a 
time customer, as nearly all were, say fifty 
years ago, he brought his cash with him to 
liquidate previous purchases, thus making his 
account good for another credit. There was 
personal contact and acquaintance between 
buyer and seller, but this no longer exists to 
any appreciable extent. The business of to-day 
is done mainly through traveling agents and 
by correspondence, so that no opportunity is 
afforded the merchant or credit-man of exer- 
cising his judgment of character and of men. 
Half a century ago the New York merchant 
prided himself on his keen, perceptive facul- 
ties in judging human nature. Constant prac- 
tice undoubtedly made them adepts in this 
special vocation, and questions of credit were 
probably no more vexatious to them than they 
are to us. At any rate, they were always ready 
to back their opinions, if favorable, by risking 
their goods. 

Did they ever lose? The losses sustained by 
le 



242 WHOM TO TRUST. 

New York merchants, say from 1800 to 1850, 
were enormous, but they also reaped large 
profits, and neither the losses nor the long time, 
six to twelve months usually, prevented them 
from making fortunes. 

Is a personal interview between a would-be 
debtor and creditor an advantage, or detriment, 
in determining credit? It may be either, accord- 
ing to circumstances. Both methods, personal 
interviews and reports, have their compensating 
features. The accomplished rogue impresses 
you favorably very often. He has made it his 
study to give good impressions, and he is as 
well up in his profession as the merchant — he 
is often the more expert of the two. Even 
though you have unfavorable reports of him, 
in his case forewarned is not forearmed always. 
He manages, not infrequently, to brush away 
any ill-favored comments that his neighbors or 
reporters may have made, or that in any way 
preceded him. A personal interview gives him 
that opportunity, and he, more than likely, is 
not only able to make a satisfactory explana- 
tion, but able to ingratiate himself into your 
confidence and get your sympathy as well. Per 
contra, when we have only reports to govern us, 
we have cold-blooded facts to deal with; at 
least we accept them as facts, and our cool 
reasoning faculties and judgment alone are 
exercised, and our sympathies are in no wise 
appealed to or endangered. 



INTERVIEWS VERSUS REPORTS. 243 

It is not to be denied that now and then men 
have been badly nsed and their reputation 
injured without just cause; but, after all, these 
cases are rare, and we may with safety conclude 
that when injurious reports are circulated, that 
there is some foundation for them, as a rule. 
Where there is smoke there is always some 
fire. 



244 WHOM TO TRUST. 



CHRONIC BORROWERS. 

There is a class of individuals in all mercan- 
tile communities who may be likened to para- 
sitic or fungus growths. Like the latter, they 
subsist on their neighbors. These parasites in 
business, or out of business, are always asking 
us for a loan till to-morrow or next day, and no 
sooner get one loan paid up than they are 
around for another. 

There is a class of men in business who are 
always borrowing from Peter to pay Paul, and 
they get as many Peters on the string as the 
neighborhood and their circle of acquaintances 
will afford. They are thoroughly imbued with 
the idea that business is done for their especial 
accommodation, and accordingly press all their 
neighbors and acquaintances, however slight, 
into service, keeping at the same time close 
watch on each one' s turn. The pressing obli- 
gation is always pressing, and seems never to 
be discharged; and probably it never is, being 
only shifted from one day to another, and from 
one shoulder to another. There is hardly a 
house that does not carry in its cash drawer 
several I. O. U.'s returnable to-morrow, and 
which represent to the cashier so much cash in 
balancing his accounts. At the end of the year 
more or less of these are always unredeemed 
and uncollectible. The most consoling thing 



CHRONIC BORROWERS. 245 

about a loss of this kind is that when your cus- 
tomer suspends payments with you, he suspends 
his visits to you also, and in this there is some 
compensation at least. 

But there is a more business-like way of get- 
ting at this. The man of business tact, be- 
longing to this same class, however, has a 
more genteel way. He wouldn't do as the 
other fellow does; i. e , ask for a loan. That 
looks too much like borrowing. He runs in 
and asks you to exchange checks or notes with 
him. He knows whose checks are always good 
at the banks. You do not catch him exchang- 
ing his check for one that there is any question 
about; it must be gilt-edged to be fit for an 
exchange with his. His check, you know (but 
you do not always), will be all right to-morrow 
by the time it gets 'round to the clearing-house. 
Generally it is, but there is a time coming 
when it will not be. 

Now, for a good business-man and merchant 
who is supposed to have good judgment, backed 
by generous experience, what justification is 
there for you to engage in transactions of this 
kind? None. There is neither profit, interest, 
nor the usual banker's fee for exchange for 
you, but on the other hand, you take all the 
chances of a loss, and are your own guarantor. 
Transactions without profit, or show of profit, 
can not be predicated on sound business prin- 
ciples. A good rule to go by in these and all 



246 WHOM TO TRUST. 

cases is this: never make a business transaction 
by which you can not possibly, and do not 
expect to be, the gainer by the sum of a fair 
profit or interest on your money, either directly 
or indirectly. Good business sense does not 
indorse transactions of all risk and no profit, or 
even safe trades without profit. 

Accommodation paper and accommodation 
indorsers are not as abundant as they were in 
the last generation. Many an old man plods 
along to-day, poor, but wiser for his experience 
in this direction. But neither his experience 
nor wisdom have availed him in ]ater years. 
That one fatal step, indorsing, caused his ruin, 
and his fate is the more deplorable when we 
consider the occasion. The present generation 
of business-men do not indulge in this danger- 
ous pastime to any extent, owing, probably, to 
the experience and good advice of our fathers, 
and safer methods of doing business withal. 

There are legitimate borrowers, and borrow- 
ing and lending make up a large part of our 
daily commerce. It is not only legitimate, but 
it is both necessary and profitable. The busi- 
ness-man with legitimate business wants is 
always helped. The help seeks him quite as 
much as he seeks it, and transactions of this 
class are for mutual benefit, and subserve the 
highest commercial purposes. But the individ- 
ual who is made the subject of this chapter, 
the leech who fastens his suckers on his good- 



CHRONIC BORROWERS. 247 

natured and accommodating friends, is not in- 
cluded in the list of legitimate borrowers. We 
have got him on another list, and if he should 
never " show up again," he will never, no, 
never, be missed. 



248 WHOM TO TKTTST. 



DEBT VERSUS INDEPENDENCE. 

Debt makes slaves of men. It robs them 
of their independence, of their manhood, and 
enslaves alike body and mind. 

Within certain limits, debt, like credit — one 
always implying the other— is legitimate. For 
every dollar of credit there is a co-existent 
debt, and both are legitimate, proper, and con- 
ducive to the highest development of trade and 
commerce, as well as individual benefit. It is 
not, however, the legitimate function of debt 
and credit that we assail here; it is not their 
use, but their abuse, to which attention is 
directed. 

Though debt is the result of a voluntary 
action to commence with, it is nevertheless 
grinding and full of servitude, and that of a 
most menial kind. Millions are kept and keep 
themselves in perpetual bondage, and, consider- 
ing the ease with which persons can get into 
debt, it is not to be wondered at. Even the 
poor, copper-skinned laborer of Mexico knows 
what it is to hoe and dig all his life to make 
good his arrears to his priest or his employer, 
so that his credit will be good for the next feast 
day. It may be a good thing for the priest 
and employer to keep these poor idiots always 
in debt, as it keeps them in a state of bondage 
and subjugation, but their mission on earth 



DEBT VERSUS INDEPENDENCE. 249 

would seem to be an aimless and unsatisfactory 
one. To get into debt is easy; to get out is far 
from easy. Man is born free; free from debt, 
at least. There is no mechanic' s lien or mort- 
gage on him at his birth. If he gets into debt 
later on, it must be of his own volition. The 
bondage is, therefore, always of his own mak- 
ing. The chains that bind him are of his own 
welding. 

Slavery, as an institution, no longer exists, 
on this continent at least, but Abraham Lin- 
coln 1 s " Emancipation Proclamation" did not 
wipe out a species of slavery which keeps mill- 
ions in servitude still. No law can reach con- 
ditions which people eagerly impose on them- 
selves. 

The ancient Jewish law contained a clause, 
providing, that on the day of the Jubilee, the 
slates should be washed clean and all debts 
forgiven. This provision would work well now, 
and in the interest of a large debtor class; not 
so much because its debts would be forgiven, 
but because creditors would be scarce and debts 
could not be so easily contracted. 

Debts are always a burden on present efforts, 
since the fruits of toil go for benefits and com- 
forts already enjoyed, instead of to be enjoyed. 
Mentally, men are kept on the ragged edge, 
scheming, conniving, aye, conspiring how to 
pay or not to pay their honest debts. How to 
pay them involves worry and discouragement, 



250 WHOM TO TRUST. 

and this condition hampers the best efforts and 
intentions. How not to pay them incites the 
baser tendencies of the mind and heart. The 
man who is burdened with debt, who is 
under moral and legal obligations to his 
fellow-man and unable to discharge them, has 
ceased to be independent. His self-respect, his 
pride, and his sense of honor (all men have 
these, with rare exceptions) are made to feel a 
conscious degradation. What crimes, what 
humiliation, and what hypocrisy in all the 
world' s history, from its beginning to the pres- 
ent time, may not be traced to man' s indebted- 
ness to man! Debt and bondage, in this con- 
nection, signify about the same. Watch the 
man who is always in debt beyond his ability 
to pay (it requires no philosopher' s lantern to 
find him) and note the difference between him 
and his neighbor, who is master of himself. 
Have you ever had a debtor who would walk 
blocks out of his way to avoid you, or would 
"scoot out" by the back door when he saw 
you coming in by the front? Possibly you 
have been there yourself; though, perhaps, your 
case may not have been so well developed, only 
the symptoms, backed by a strong inclination, 
being present. What a power we here behold, 
making men slink into by-ways and alleys; 
making them cringe and beg as for their very 
existence! Think of the subtle force there 
capable of making us such cowards! The man 



DEBT VERSUS INDEPENDENCE. 251 

who would not flinch on the battle-field, whose 
courage would be equal to any danger, and who 
would brave superior physical forces, is yet, 
in his creditor's presence, cowed and subdued. 
But it is not the creditor 1 s presence that cows 
him, nor is it any force that he himself exerts. 
It is the debtor's consciousness of his own 
weakness, loss of confidence in his own recti- 
tude; in short, it is the moral part of his nature 
that accuses him. Self- accusation is a for- 
midable adversary, than whom all others are 
insignificant. 

We have here portrayed the man in debt; 
let us now look at the man who is out of debt, 
and who purposely keeps out. Whether he 
possesses much or little of this world's goods, 
you will find in him a conscious independence, 
a manly self-respect before all men, and a 
strong personality which he has no occasion 
to hide or stunt; and well for every man who 
has learned to appreciate this state, either from 
experience, observation, or principle. 

Within certain limits, debts are legitimate 
for everybody, in or out of trade. As long as 
they are confined to a point, and within the 
limits of our ability to pay at the time specified, 
they may be safely and advantageously in- 
curred. But measure carefully your depth and 
do not go beyond it if you cherish and would 
maintain freedom and independence of char- 
acter. 



252 WHOM TO TBTTST. 

It is a favorite remark with a certain class 
that, "The rich are growing richer and the 
poor poorer." I do not think the poor are 
growing any poorer; they simply stay poor. 
There seems to be an idea prevalent among a 
certain class, that as one man makes himself 
rich, others are impoverished. There is neither 
logic nor reason in this. Instead of charging 
this disparity to any peculiar or unfair condi- 
tions of society, it is due only to natural causes. 
Riches and accumulations of any kind have 
a beginning, and the so-called poor man never 
makes a beginning. The methods and ways of 
the man who has accumulated a fortune, are not 
those employed by the masses. There is method 
in accumulating, and the great majority of the 
self-styled poor have none. Causes have their 
effects, and these are either good or bad, the 
alternative resting largely on our own will. 

Who is it that makes the rich richer? It is 
the multitude of eager souls who are always 
getting trusted, and getting in debt, and pay- 
ing three prices for the privilege. A rich man 
would feel that he was being robbed and ruined 
to pay the prices that the poor are paying. 
Take the "installment" plans and the innu- 
merable "easy-payment" concerns, and who 
supports them? A personal friend of the 
writer, engaged in the business, has computed 
that not less than $4,000,000 annually are paid' 
by the so-called poor people of this city and 



DEBT VERSUS INDEPENDENCE. 253 

county, in excess of cash prices, for the privi- 
lege of getting things before they are able to 
pay for them. No man has, or can ever ac- 
quire, a competency who follows this plan. 
Earn first and spend afterward, is a maxim of 
the first importance, and one which every man 
must adopt if he hopes to improve his finan- 
cial condition. 

It is the abuse, and not the use of debt and 
credit that makes them a curse — to the poor, 
especially. * 

* The pauper poor are not referred to here, but those people 
who work but never get ahead, and who style themselves " the 
poor " in contradistinction to those who are better off. 



254 WHOM TO TEUST. 



COMPROMISES AND EXTENSIONS. 

It was the custom in the last generation for 
merchants to ask general extensions when they 
became unable to meet their obligations; but 
this method of getting out of financial difficul- 
ties has fallen into disuse. In our day, we 
ascertain what a man can afford to pay, and 
settle with him on a cash percentage of our 
claims, if we can. 

Conditions are constantly changing, and 
what was advisable and practicable fifty years 
ago, does not meet the case to-day. In the 
first place, long time was given, and to tie up 
capital and accounts, by carrying customers 
voluntarily a year or two, was but the regular 
order of things. To give, then, one, two, or 
three years' additional time, in an emergency, 
with prospects of ultimate payment, seemed 
nothing out of the way. It was in keeping 
with the general tenor of things. Profits in 
those days were much larger than now, and 
this fact explains the longer terms that mer- 
chants gave and were able to give, and also 
furnishes reasons why extensions were prac- 
ticable and judicious then, and not advisa- 
ble now. In late years, an extension has inva- 
riably meant a prolongation and aggravation 
of the difficulties, both to debtor and cred- 
itor. Time has ceased to be the essence of 



COMPROMISES AND EXTENSIONS. 255 

the tiling needed in financial embarrassments 
or insolvency. With larger profits and ca- 
pable management, extensions might still be 
advisable; bnt the larger profits are want, 
ing, and the fact is, that most concerns have 
all they can do, under fairly good condi- 
tions, to keep along, to say nothing of making 
up losses of the past. To ask an extension 
now, causes a concern's credit to be impaired 
and practically lost, and it is thenceforth not 
in position to command the lowest prices or the 
best service in any way, and a successful out- 
come can not be predicted. It is, furthermore, 
loaded down with interest and a large debt, 
which is always growing larger; it is harassed 
and worried, and, in short, working at tremen- 
dous disadvantage in every way. A large 
amount of valuable time is lost to the concern 
in attending to affairs of the past, instead of 
utilizing it to gain immediate and future 
results. Yesterday's profits on transactions 
have been determined, and no amount of time 
that can be bestowed on past affairs will ever 
make the profits of by -gone days any larger. 
Your time may be devoted advantageously to 
securing what you have made, but you can not 
add one iota to the amount, consequently, the 
more time you give to present and future 
operations, and the less you are obliged to give 
to things past, the better will be the chances of 
success. 



256 WHOM TO TRUST. 

The last few general extensions that come to 
mind, proved lamentable failures. Time only- 
made things worse, and when the extended 
payments matured, affairs were more compli- 
cated and inextricable. Although, at the outset, 
the assets seemed to warrant paying dollar for 
dollar if time could be gained to convert them, 
many of the shrewder creditors signed the ex- 
tension reluctantly. They were more willing to 
accept a cash offer of fifty cents on the dollar, 
and the subsequent outcome proved that this 
would have been the best thing for all inter- 
ested. But the concerns would not listen to 
making such an offer. The property was suffi- 
cient to pay in full, and their pride and sense 
of honor would not permit them to compro- 
mise their indebtedness. At the final wind-up, 
under an assignee, the creditors did not realize 
even fifty cents, after losing from one to two 
years' time in the bargain. 

The code of commercial honor which found 
adoption by merchants of former generations, 
did not countenance paying less than dollar 
for dollar, and compromises were looked upon 
as odious and dishonest. But to ask an exten- 
sion of creditors, and agree to pay as fast as 
possible, was considered the honorable pro- 
cedure for embarrassed and insolvent debtors. 
As a rule, the parties worked out their indebted- 
ness in time, and this ' ' working out ' ' may be 
taken in a literal sense. But of late years, 



COMPEOMISES AND EXTENSIONS. 257 

when debtors find it no longer possible to 
meet their obligations, they make the necessary 
move to compromise for cash, and this kind 
of settlement is generally acceptable to and 
preferred by creditors, provided the offer is 
reasonably fair, and in keeping with the insol- 
vent's condition. 

When we find merchants, as a rule, adopting 
certain uniform methods, we may be reasonably 
sure that those methods have the largest advan- 
tage on their side. We do that which pays us 
best, whether it be to compromise with our 
debtors, or anything else. That is the true 
principle of trade, and on this principle, com- 
promises for cash have been found preferable to 
obdurateness on the part of creditors. It pays 
better to take fifty cents cash to-day than to 
take the chances of getting one dollar five or ten 
years hence, and perhaps not then. The fifty 
cents will make us fifty in iive years if employed 
in business; on the other hand, if you should 
succeed in getting face value for your claim in 
five years, you would not be so well off then, 
after deducting the lawyer's fees, loss of time in 
looking after it, etc.; and the proportion of 
claims against bankrupts that are ever realized 
in full, is quite small. The man who has a 
mass of debts hanging over him, can still con- 
tinue in business, and conduct it so as to evade 
his old creditors. 

This being the experience, we say to the in- 

17 



258 WHOM TO TRUST. 

solvent debtor to-day: "How much cash can 
you offer us on the dollar for our claim?" Of 
course the creditor informs himself fully as to 
the condition of the bankrupt' s estate, and also 
as to the causes leading to the failure, and he 
is usually not slow in determining what he will 
take; nor does he insist on the last cent that 
the estate can be made to pay in the bankrupt's 
own hands. Creditors want a fair settlement, 
but are willing to leave the bankrupt in con- 
dition to continue his business, provided his 
course has been characterized by honesty and 
fair dealing. 

This plan, while being fully as, if not more, 
advantageous than any other to the creditor, 
combines a humane and Christian sentiment 
withal. 

There are a few houses that never compro- 
mise. They take either all or nothing. Some of 
the old Quaker houses used to refuse to sell 
goods to dealers who had been known at any 
time to settle for less than dollar for dollar. 
Both these cases are now rare exceptions. 

Granting the wisdom, and good, practical 
sense of our present methods in dealing with 
the unfortunate debtor, we have next to con- 
sider the proper course to be pursued with 
regard to the dishonest and fraudulent debtor. 
To save ourselves annoyance, litigation, and 
expense, we are too much inclined to settle 
with him also; but in his case we should most 



COMPEOMISES AND EXTENSIONS. 259 

emphatically draw the line. We should do 
this as a measure of self-defense and protection, 
and also as a warning to those whom we trust, 
that questionable transactions will not be lightly- 
passed over by compromising. If creditors 
would adopt a uniform practice of refusing to 
settle with dishonest debtors, to the end that 
they will be kept out of trade at least, a salu- 
tary effect would be produced on the commu- 
nity. And more than that, whenever fraud is 
attempted on the creditors, there should be 
unanimity of sentiment and action to bring the 
guilty party to justice. Rather than accept 
the small pittance usually offered by this class, 
we should be willing to sacrifice it, and, instead, 
prosecute and punish them to the full extent of 
the law. 



260 WHOM TO TEUST. 



HISTORY OF CREDIT. 

The oldest record we have of credit is furn- 
ished by China. Banks of deposit and dis- 
count existed there 2800 b. c, and as the exis- 
tence of banks denotes a high state of devel- 
opment of commerce and of confidence, we 
may reason that credit, in that deliberate and 
slowly progressive country, was ages in matur- 
ing before it culminated in the establishment 
of banks. Eight hundred b. c. we find inter- 
est laws enacted for the protection of borrowers, 
and 500 b. c. the Chinese Government issued 
paper money. We find in the earliest history 
of Egypt and India credit transactions recorded. 
We read of the Hebrew women 1500 b. c. going 
out into the wilderness glittering with jewelry 
and trinkets borrowed from their Egyptian 
neighbors; nor is this mentioned as a novel 
occurrence. 

History gives us no clue as to when and 
where the first actual credit transaction took 
place. That this occurred at an early period 
when man was still in a semi-civilized state, and 
incapable of reducing traditions and events to 
writing, we may readily take for granted. The 
most ancient writers to whose works we have 
access, lead us to conclude, by inference at 
least, that credit was not only contemporaneous 
with them, but even more ancient than they. 



HISTORY OF CREDIT. 261 

Clauses pertaining to contracts, debt, mort- 
gage, etc., were contained in the Jewish law, as 
well as that of India and China, and a national 
bankruptcy court seems to have been as much 
a necessity then as now, only they called it by 
different names. One of the grand provisions 
of the Jubilee demanded that ' ' the slate ' ' be 
washed clean, and all debts be forgiven at 
stated intervals. 

In Athens and other commercial centers of 
Greece, the credit system was not unknown. 
The rights of capitalists were strictly guarded, 
though they were heavily taxed. Money was 
obtainable, and money-lenders were numerous, 
but interest was high. Indorsing for one 
another seems to have been customary then as 
in modern times, for we find laws pertaining 
to the liability of the indorser. They had 
marine insurance and probably fire insurance 
companies. Cargoes were insured, and vessels 
were burned or shipwrecked for the sake of the 
insurance money then, as ever since. 

In Rome, also, the credit system flourished. 
There were many rich people, composed mainly 
of the nobles, who never turned a deaf ear to 
the poor applicant — if he had good security. 
But even without this, the noble lord was tol- 
erably safe, since he had not only a hand in 
making the laws, but the right of enforcing 
them to suit his lordship's own ideas of justice. 
We are told that ' ' torture, slavery, and impris- 



262 WHOM TO TRUST. 

onment with hard labor, in a private jail some 
two stories beneath the banquet hall of the 
illustrious usurer, were the lot of all delin- 
quents, and well for them if they ever got out 
of his clutches again." With prospects like 
these staring one in the face, it must have 
required considerable nerve to become a bor- 
rower. 

In feudal Europe, neither credit nor com- 
merce attained to any growth. For many cen- 
turies there was complete stagnation in the 
sciences, arts, and commerce. That period in 
the history of the Caucasian race was unset- 
tled and full of turbulence. The only law that 
prevailed was that of " might." We read of 
credit being given, but it lacked the essence of 
a free-will transaction. Often the lender was 
not a willing party to the transaction, but the 
alternative was not to be thought of. It was 
simply a choice as between two evils. Practi- 
cally, borrowing was disguised robbery. Rich 
Jews, wealthy provinces and cities, were alike 
called upon for loans by the feudal lords, and 
it was either to grant the request voluntarily 
or be compelled to do so at the point of the 
sword, or something worse. Sometimes the 
loans were repaid in a left-handed manner by 
granting the creditor special privileges, but 
they were rarely paid back in money. A de- 
mand for the return of a loan would have been 
more likely to meet with dry blows from the 



HISTORY OF CREDIT. 263 

princely borrower and his minions, than with 
payment in hard cash. 

In the Europe of the Middle Ages, we find 
the first banks established by the rich trading 
centers of Genoa, Venice, Hamburg, and Bre- 
men. From the time of the establishment of 
these, we may date the growth of commerce 
and credit. As banks can not flourish in com- 
munities where confidence does not exist, we 
must assume that the conditions in Europe had 
undergone a change for the better. But we 
must not infer that the functions of banks were 
the same then as now. They accommodated 
the public mainly in one way, namely, as reposi- 
tories of gold and silver, plate, jewels, valuable 
documents belonging to the wealthy few, 
and to the State or smaller municipalities. 
That these deposits represented enormous value 
must be allowed from the fact that, at various 
times, the cupidity of revolutionary armies in 
adjacent States was aroused and frequent 
assaults were made on Bern, Genoa, Venice, 
and Amsterdam for the purpose of laying hands 
on the vast treasures held by the banks of 
those cities. 

Holland in the seventeenth century had 
better credit than France or England, and, up 
to the reign of Queen Anne, she continued to 
be the first commercial nation. After that, 
England was in the ascendency, and has main- 
tained it ever since, and its credit, at home and 



264 WHOM TO TRUST. 

abroad, from that time to this, has always been 
the wonder and amazement of other nations. 
We are told that "the Persian embassadors 
of hardly more than a centnry ago, conld never 
comprehend the national debt of Great Britain; 
they talked mnch of it, they questioned their 
English friends, and sent home voluminous 
dispatches on the subject of the fabulous lia- 
bility of the Britons. But when they were 
shown the park of artillery at Woolwich, and 
heard the roar of ordnance on a field day, they 
refused to hear further explanation of the debt, 
declaring that the ' British Government had 
cannon and gunpowder enough to blow debt and 
creditors into infinite space,' and that, nnder 
these favorable circumstances, no demand for 
payment was possible." 

They solved the problem in precisely the 
same manner that the despots of old would 
have done. Not even the legal form of repu- 
diation of interest or principal would have been 
deemed necessary by them. 

We are shown that a high state of credit 
marks a corresponding degree of civilization. 
Savages and the ruder tribes of uncivilized 
countries hardly know what credit means, and 
have no word even expressive of its meaning. 
Only where probity and ownership of property 
exists, and where rightful possession is defined 
by a higher law than that of the individual 
standard, can credit flourish. In the matter of 



HISTORY OF CREDIT %65 

property and ownership, the savage is like a 
child ; everything within his reach he appropri- 
ates, and neither scruples nor asks questions. Of 
what we term honor, the savage has none, and 
truth he is a stranger to — with strangers par- 
ticularly. 

In all civilized communities we find credit, 
bat its use is found to vary according to the 
intelligence and education of the people. 
Credit is given liberally by the Chinese, we are 
told. They are thrifty in their way, and under- 
stand the accumulating properties of little 
grains of sand better than any other j)eople. 
They are also the greatest swindlers, in a small 
way, in the world ; though in their commercial 
transactions with one another, they are said to 
be very honest. No bankrupt laws exist, but 
debtors are liable to corporal punishment. Not 
paying one's debts is a disgrace in China, and 
the debtor is practically " drummed out" of 
business. The whole nation " settles up" at 
New Year's Day, which comes usually in Feb- 
ruary. It is said that China never had a panic, 
and that in times of famine or failure of crops, 
the Government furnishes liberal aid to the 
sufferers, although recent events do not corrob- 
orate this statement. 

In all European countries we find credit, but 
its use is more or less restricted in different 
localities. In Italy nearly everything is done 
for cash ; the same in Spain ; on the other hand, 



266 WHOM TO TRUST. 

in Russia and Turkey twelve months is usually 
given, even on articles of prime necessity. 
The difference in the customs of these nations 
is probably owing to climatic conditions and 
occupations. In Western Europe, we find from 
three to six months' credit rulable. 

Credit-giving is manifestly one of man's 
inventions, for we can not find that Nature ever 
established the custom. Nature gives us no 
credit. We must work first and eat afterward, 
and she is inexorable in her strict adherence to 
these terms. Man, however, is more pliant and 
accommodating in his methods, and is subject 
to a corresponding degree of disappointment 
and failure in his affairs. In dealing with 
Nature, we must first till the soil and sow the 
seed before we can eat of the abundance of the 
golden grain. Without this, the fields can not 
be persuaded to yield the harvest. The hunter 
must trudge to secure the game ; even the wild 
fruit and the shell fish make toil necessary for 
their obtainment. Thus we see that Nature is 
firm and holds us steadily to fixed conditions, 
and it is no doubt well that she does so. 

"Credit has an aptitude for good and evil; it 
can be benign or malignant in turn, but its ex- 
istence is a sure mark of progress in the social 
scale. How it slowly ripened, bearing fruit in 
the shape of stocks, bonds, bank and govern- 
ment notes, loans, and mercantile credits would 
be difficult to trace. We exchange our earn- 



HISTORY OF CREDIT. 267 

ings for the flimsy bits of paper with a trust 
that is most wonderful, and the wonder is that 
credulity does not of tener outstrip performance. 
But this modern credit is the creation of our 
own confidence, withal, and in the course of its 
development has struck deep roots in the very 
heart of the State." 

' ' Credit is two-faced and may be employed to 
our benefit or injury according as its potent aid 
is invoked. With a good foundation for our 
business to stand on, backed by brains and 
energy, it may be used advantageously within 
proper limits. The danger lies in too great 
reliance on its good offices. It is often looked 
upon as an inexhaustible quarry, ever ready to 
yield to our wants, but apt to fail us when 
most needed." 

Credit, like fire, when carefully handled is 
of incalculable service. 



268 WHOM TO TRUST. 



OUR CREDIT SYSTEM. 

Some one has aptly said : " Commerce is the 
offspring and at the same time the support of 
civilization." Wherever we find the one, we 
always find the other. Commerce came with 
the growth of civilization, the latter being the 
cause, and the former the natural result. This 
we must accept as a fact, although to day we 
might almost be inclined to believe that com- 
merce was the cause, and civilization the 
effect. 

But commerce does not stand as the agent or 
representative of civilization in doing this grand 



work of civilizing and educating. While she 
performs this work, and does it well, it is for- 
eign to her real purpose and apart from her 
mission. The purpose of commerce is not of a 
philanthropic nature; it has no such motive. 
Self-interest and the hox>e of personal aggran- 
dizement are its incentives, and these furnish 
the motive-power for its penetrating and aggres- 
sive tendencies. 

Thus we see that civilization and commerce 
are so closely allied that it is difficult to deter- 
mine which one of the two leads or follows. 
When we consider the relationship of com- 
merce and credit, we find the line of demark- 
ation even more indistinct. They are of simul- 
taneous growth, and the existence of one 



OUR CREDIT SYSTEM. 269 

always implies, and is indispensable to the 
other. 

It might be argued that commerce could 
exist without credit. Possibly, on a very 
limited scale. Every commercial or mercan- 
tile transaction is based on credit at some 
point. Your confidence causes you to rely on 
statements made, and you credit these state- 
ments. You may buy a barrel of St. Louis flour, 
and pay the cash for it, but there is a credit 
implied, nevertheless. What makes you pay 
the cash for the flour before you have actually 
examined the contents of the barrel, weighed 
itr on your own scales, and satisfied yourself 
from other sources that the flour was made in 
St. Louis, and not in Minneapolis, as claimed? 
You see, even in our cash transactions, credit 
is given. In the above case the buyer gives all 
the credit and takes all the chances, whereas, 
in the ordinary credit transactions, the flour 
being sold on time, both buyer and seller give 
credit. They have mutual confidence in one 
another that each will do as he agrees. In the 
earliest stages of civilization, commerce had no 
existence, and credit or its synonym, mutual 
confidence, was unknown. Exchanges were 
made of one commodity for another, but traffic 
of this kind is called barter, and does not reach 
the dignity of being called commerce or trade. 
The North American trapper takes beads, 
showy trinkets, and gewgaws with him when 



270 WHOM TO TRUST. 

he visits the wild tribes of the West and North, 
and these he exchanges with the Indians for 
their furs. Both get what they bargained for 
on the spot, and neither credit nor confidence 
enters into the transaction. 

But to follow the course and growth of com- 
merce and credit from its incipiency and from 
a stage of barter, when honor and mutual con- 
fidence were still undeveloped qualities in man, 
to that of our present state of commerce and 
credit and universal confidence, would lead us 
outside the domain of a practical business treat- 
ise, and open up a field more in keeping with 
the labors of the historian. Man's means of 
support must necessarily at all times have been 
an all-important element in his condition. His 
education, progress, and development are so 
dependent on and so closely interwoven with 
the means afforded him for support, that com- 
merce, which for ages has furnished that means 
to a greater or lesser degree in the different 
epochs of the world's history, must have 
exerted an all-pervading influence and power- 
ful stimulus on the welfare and possibilities of 
nations and of men. 

In no country is credit so cheap or so high 
as in the United States. It is said to be cheap 
because it is so easily obtained, or high, because 
capital goes out freely and is willing to take 
its chances on all manner of enterprises, so long 
as they offer prospective returns for the invest- 



OUR CREDIT SYSTEM. 271 

ment. It is the exception here when a man is 
denied credit for any ordinary or even extraor- 
dinary business wants. 

The marvelous progress and development of 
this country is the wonder of the world, and 
our own amazement finds no limit; but as a 
single factor in helping to bring about this con- 
dition, our credit system, extending as it does 
into every nook and corner of this great con- 
tinent and beyond it, is no less worthy of 
remark, and commands the admiration of those 
capable of a just conception of its importance. 
Why this willingness and eagerness of every- 
body to trust everybody should exhibit itself 
more in this country than in others, is not to be 
reasoned out on the assertion made sometimes 
that credit is highest where population is 
densest, and vice versa. On that theory all 
European countries would enjoy much higher 
credit than we, which is not, however, sub- 
stantiated by the facts. If density of popula- 
tion caused credit to be more easily obtained, 
it would follow that credit ought to be dis- 
pensed with a more liberal hand to-day than it 
was fifty years ago, which, also, is not the 
case. In fact, the long-time credits of that 
period, when six and twelve months were reg- 
ularly given to traders in the far West and 
South, with hardly any communication except 
when buyers visited the markets, required 
rather greater confidence than is exhibited, or 



272 WHOM TO TRUST. 

would be considered warrantable, to-day. The 
curtailment of the time in late years, we will 
admit not to be due to a lesser degree of con- 
fidence, but to smaller margins, which has neces- 
sitated turning capital over oftener than once 
or twice a year, and also to the fact that the 
trading community has more capital at com- 
mand. But could confidence possibly reach a 
higher limit than when the New York mer- 
chants, previous to the era of railroads and 
the telegraph, trusted their goods out to the 
far distant Territories, with only stage-coach 
facilities for reaching them and where the debtor 
was known to have all the advantages on his 
side? It is evident that we must look for the 
cause of our wonderful credit system in other 
directions, and not attribute it to density of 
population. 

Credit flourishes in proportion as people 
have confidence in each other; but confidence 
does not come of itself. What creates it with 
us, is, that greater opportunity is afforded 
for making money, and this, joined to our nat- 
ural ability as traders and aptitude in improv- 
ing opportunites, is what gives us faith in each 
other. Every man with moderate ability can 
make money here; he can hold his own, at 
least, and support his family out of his busi- 
ness, and there is reasonable expectation of 
success in every legitimate undertaking. Our 
inherent individual honesty we will rate no 



OUR CREDIT SYSTEM. 273 

higher than that of other nations, and placing 
all nations on a par on this score, we have this 
additional advantage over all, that money is, 
and can be, more easily made here, and this is 
an all-important consideration in the minds of 
those who have money or goods to let out. 
If a man were known to be ever so honest, 
credit would not be extended to him if his 
chances of success seemed doubtful. We 
are only willing to risk our cajrital when we 
find a reasonable assurance that the borrower 
or debtor will be able to repay it at the 
appointed time, with interest or profit. This 
assurance is felt here to a much greater degree 
than in other countries, and has been built up 
by the prestige of past experience. 

We are recognized the world over as a nation 
of traders. To deserve this encomium and to 
build up this reputation for ourselves, has set- 
tled us in the conviction th,at we possess supe- 
rior advantages, as well as talents, in our meth- 
ods of money making. These are the elements 
that contribute to the development of our credit 
system, and capital, consisting either of money 
or goods, feels not only safe in the return of 
the principal, but has every assurance also of 
interest or profit. This furnishes the funda- 
mental principles on which credit is estab- 
lished, nor will it flourish under adverse con- 
ditions. 

In countries where we find a high rate of inter- 

18 



274 WHOM TO TRUST. 

est rulable, and where 5 per cent, per month is 
demanded for the use of cajjital on the most 
available securities, we shall always iind inse- 
curity of property and a doubtful feeling as to 
the ability of the borrower to return the loan at 
the appointed time. Capital, on the other hand, 
with us is more productive at from 5 to ? per 
cent, per annum, it being constantly kept earn- 
ing, and at this rate is always loanable with the 
utmost security and without great risk or anx- 
iety to the lender. The larger the risk that men 
take, the larger will be the charges exacted. 
The hope of large gain is always attended 
with proportionately great risk. "High inter- 
est means bad security," is an old maxim. 

The credit system may be said to have been 
a growth of necessity, like other systems and 
conditions. The growth of civilization and 
industry made it indispensable, and it kept on 
growing with the progress of commercial punc- 
tuality and integrity, and wherever it finds the 
aliment of its growth, it flourishes and can not 
be destroyed. Long before it attained its pres- 
ent magnitude and extension, it had sent out 
many vigorous shoots in various countries. In 
a work by Stephen Colwell we find mention 
made of the fairs, so prevalent in Europe in the 
Middle Ages, some of which continue even 
down to our time, and that payments at these 
fairs were made, to a large extent, by setting 
off debts against debts. ' ' Men learned to pay 



OUR CREDIT SYSTEM. 275 

their debts with their credits, and this mode of 
payment only disappeared as the progress of 
the credit system and the growth of cities 
absorbed both the business and the payment 
of the fairs." Every debt implying a credit, 
the fact was revealed that no one could better 
employ his credit than in paying his debts. 
This required no money, and was, therefore, 
not only economical, but free from innumerable 
risks and trouble inseparably connected with 
payments in money. 

Our clearing houses and exchanges, our bank- 
ing business, and our commercial and financial 
transactions, are all conducted on precisely the 
same principle. Jones borrows money at the 
bank and the amount is placed to his credit. He 
owes Smith, and gives him a check on his bank. 
Smith deposits it (in the same bank perhaps), 
and the check is credited to Smith and charged 
to Jones. No money, or actual cash, is handled 
in the transaction. Credits are thus used to 
}3ay debts; but before this function of credit 
can be utilized to the uttermost, as we see it 
to-day, a fully-developed credit system and 
mutual confidence are absolutely necessary. 

All our large enterprises, our large corpora- 
tions, and undertakings of both a private and 
public character, are due to, and have been 
possible only through, the medium of our .credit 
system. The capital to further and operate 
these enterprises is contributed, in a large 



27(5 WHOM TO TKUST. 

measure, by the many, although a few large 
capitalists generally take the lead. But both 
small and large investors have confidence and 
are willing and eager to intrust their accu- 
mulations to the management of others, in 
the expectation of fair returns. To this confi- 
dence, to this facility for obtaining credit, it is 
due that companies can be founded for pur- 
poses the most useful and beneficial. It is not 
the individual ownership of money, but credit, 
that ''bridges the morass, spans the land with 
iron rails and the sea with copper wires, and is 
building, spinning, making, and gathering all 
that can be built, spun, made, or gathered." 

The banking business of a country furnishes 
the best index to its credit, both national and 
individual, and to the confidence existing 
among its people . in one another. To foreign- 
ers our methods of banking seem loose and 
insecure, and to an English or Continental 
banker, accustomed to the precautions used in 
his country, we appear, at first glance, most reck- 
less. American bankers trust out their funds 
with the same freedom as does the merchant 
his goods, and not unfrequently loans for busi- 
ness uses are made solely on the borrower's 
individual responsibility and reputation, with- 
out other security or guarantee of second or 
third parties as indorsers. 

Every bank customer, of any standing what- 
ever, being thus readily and cheerfully accom- 



OUR CREDIT SYSTEM. 277 

modated with loans to an amount within keep- 
ing with his capital and business, the cus- 
tomer, if he be a merchant or manufacturer, 
can increase his business to the extent of his 
ability to become a borrower, and in this wise 
trade is greatly facilitated and the country 
benefited. What he trusts out on the one 
hand, beyond the limit of his own caxoital, he 
borrows on the other hand from the banks, and 
though he pays 6 per cent, per annum for the 
money, he is the gainer by the difference be- 
tween the interest paid and the profits secured. 
And the large accumulation of our loanable 
funds always finds a ready demand from this 
source. Bankers are as eager to find borrowers 
as borrowers are to find bankers. In times of 
panic and depression the banker is forced, 
much against his will and inclination, to call 
in and reduce his loans as a matter of safety. 
When money commands the highest rate of 
interest, which is evidence of loss or want of 
confidence, bankers find it necessary to be most 
conservative, and dare not avail themselves of 
the opportunity of making the larger gains. 
Although the rate of interest is higher, they 
earn less money, as only a small proportion of 
the capital and deposits can be loaned out with 
safety. In ordinary times, on the contrary, the 
minimum reserve only need be kept on hand, 
thus allowing a much larger proportion of the 
bank' s funds and deposits to be used. Whether 



278 WHOM TO TRUST. 

banks feel called upon to keep the maxi- 
mum or minimum reserve, whereby a stringent 
or an easy money market is largely caused, is 
simply an evidence of favorable or unfavorable 
conditions. In times of panic, banks get the 
credit of making ' ' confusion worse confounded ' ' 
by calling in their loans and refusing new 
ones; but banks are really responsible for this 
in but a small measure. It is the depositors, 
composed of people who are not actively en- 
gaged in business, and who easily take fright, 
who cause the stringency by loss of confidence 
in the safety of the banks and who consequently 
withdraw their money for safe-keeping in an 
old stocking. The withdrawal from circulation, 
and from the loanable funds, of the aggregate 
of all these small deposits, is a matter beyond 
the control of the banks, and loans and depos- 
its, in the hands of others, not bankers, are 
likewise subject to be called in from the same 
general cause. 

High credit is indicative of universal confi- 
dence, and increases the productiveness of a 
country. This confidence is what keeps the 
savings and earnings of the people in circula- 
tion, and whoever accumulates a savings fund, 
be it ever so small, deposits or invests it 
where it will be used in producing and earning, 
either directly or indirectly. Outside of the 
pocket money of the people, money is not kept 
locked up or hidden away as it used to be, ex- 



OUE CEEDIT SYSTEM. 279 

cept during times of financial distress. In this 
generation, and in all commercial countries, 
money is esteemed more for its earning capacity 
than for the thing itself ; in other words, a 
larger proportion of the people' s money assumes 
the character of capital, and the difference be- 
tween the two terms is, that capital is money 
(or wealth) employed in producing and earn- 
ing, while money, not productively employed, 
is not capital. 

The miser is a relic of a period when hoard- 
ing and hiding money and valuables was neces- 
sary for their safe-keeping, and when a con- 
dition of universal confidence of man in man 
had no existence. The miser has no confidence 
in anybody or anything, except the glittering 
gold and silver coins themselves, though lat- 
terly we have read of finding greenbacks actu- 
ally stowed away among the effects of defunct 
misers ; but such a stretch of confidence as this, 
in even "Uncle Sam's scrip," is evidence, 
surely, of miserly degeneracy, and of a weak- 
ened mind. 

The money hoarded and hidden by the miser 
is taken out of circulation and ceases to be pro- 
ductive. In this light, a community of misers 
and a community of barbarians or Hottentots, 
by neither of whom mutual confidence is un- 
derstood, would produce about the same rela- 
tive results and conditions, inasmuch as 
neither community would contribute to pro- 



280 WHOM TO TRUST. 

ductiveness or development of natural re- 
sources. 

The difference between this condition, with- 
out credit, and our actual condition, with the 
function of credit fully developed, is simply 
the difference between a condition of ignorance 
and barbarism and that of the highest type of 
civilization and development of the human 
race. 



CEEDIT — CAPITAL AND LABOE. 281 



CREDIT: ITS RELATION TO CAPITAL 
AND LABOR. 

The natural and logical order in which these 
great factors in our industrial system range 
themselves, is labor, capital, and credit. 

Labor is the source whence all wealth is 
derived. It is the prime factor, and of neces- 
sity precedes capital and credit; for without its 
performance, neither the one nor the other 
could have existence. Wealth represents the 
surplus of labor performed in excess of the 
requirements to maintain life; but our aggre- 
gate wealth is not an exact or even approximate 
measure of the product of labor. Natural 
agents and causes frequently aid in augmenting 
capital where it already exists; but such aug- 
mentation is due, nevertheless, to the impulse 
given by labor, both past and present. What- 
ever property of value we may possess, is cer- 
tain to have required a certain amount of labor 
to be expended in its production. This labor 
may, or may not, have been performed by us, 
but that an equivalent has been rendered for 
our possessions, at some time and by someone, 
is an indisputable fact, and whether we are the 
fortunate heirs to an estate, or have found the 
money, does not alter the case. 

To produce food for our maintenance requires 
labor, though only a small portion of our time 



282 WHOM TO TRUST. 

need be sacrificed in toiling, where mere exist- 
ence is the sole object of life, as m with the ruder 
tribes of men of to-day, or with our own race 
in its pre-civilized state. The performance of 
labor, like its employment, both having for 
their object present and future benefits, is the 
outgrowth of civilization and education. Sav- 
ages do not labor in the sense that we do; i. e., 
work to-day for benefits to be derived here- 
after. The law of self-sacrifice — self-sacrificing 
the present for the future— is, like the moral 
law, an evidence of a higher development, 
whose threshold the savage has not yet crossed. 
And in this respect a wide divergence is notice- 
able among members of the same society or 
class, and to which is attributable the differ- 
ence in their respective social conditions. 
"Take no heed of the morrow," is accepted 
in its literal sense, and the injunction is as 
religiously obeyed by a large portion of the 
civilized community as by barbarians, who 
never heard of it. 

Though rich in everything which bountiful 
Nature could supply, this continent was left 
undisturbed and undeveloped in its primitive 
grandeur, waiting for the hand of labor to make 
the transformation from a great wilderness 
to a garden of plenty for eager and hungry 
millions. Less than three centuries ago, what 
now constitutes the United States had not the 
commercial value that many a New England or 



CREDIT — CAPITAL AND LABOR. 283 

Western village boasts of to-day; but the won- 
derful change was not wrought by a miracle; it 
came through labor, and labor only. 

The Indian, though lord of all he surveyed, 
and his domain was large, had no care except 
for immediate wants. Game and water were 
within easy reach, and to satisfy hunger 
and thirst for the time being was his sole con- 
cern. Generation after generation found him 
in precisely the same condition. There was no 
thought for the morrow, and thrift was as 
unknown to him as were civilization and edu- 
cation. Not willing to make a present sacrifice 
of his comfort for a future gain, he never pro- 
duced or acquired anything, and the resources 
of fertile plain and the earth' s hidden treasures 
were left unmolested, waiting for him who 
would sow in the spring and wait till harvest- 
time for his wages. 

To say that the Indian did not labor would 
be untrue; but his labor consisted in simply 
providing for his actual wants, and no more. 
The Indian would rather work for fifty cents a 
day and receive his wages at night, than to 
work for thirty dollars a month with deferred 
payment for his toil. 

Labor performed in excess of physical wants 
from day to day, represents capital, but it may 
not assume the function of capital in our own 
hands. If, for instance, the excess earnings 
are applied to surround ourselves with extra 



284 WHOM TO TRUST. 

comforts, to the betterment of our moral, men- 
tal, and physical conditions, we have lost pos- 
session of the tangible capital to be used again 
by us; but, the aggregate wealth of the world 
has been enhanced. Thus, we see, that the 
man who labors one or two more hours beyond 
actual necessity, is a creator of capital or 
wealth, which is subsequently used, by him or 
others, in further production and accumula- 
tion. 

The modern conditions of our social and 
industrial structure have brought about the 
necessity of a division into bodily and mental 
labor. Brain- work, which furnishes the direct- 
ive power must be classed as labor, as much as 
the work performed by the hands and muscles 
of the body. Both are necessary for the suc- 
cessful operations of business, and when made 
cooperative, the largest results are obtained, in 
fact, no great results can be achieved without 
yoking the two forces together. The superior 
workman is known by the force and quality 
of mind that direct his hands, and, under 
all circumstances, a combination of the two 
enhances the value of each. The value and 
potentiality of mental labor exclusively de- 
pend on circumstances. Where a man's sub- 
sistence must be toiled for by himself, brain- 
work, or directive power alone, would accom- 
plish nothing. A certain amount of manual 
labor must be performed to result in the pro- 



CREDIT — CAPITAL AND LABOR. 285 

duction of food or anything else; but in the 
modern methods of doing business the division is 
not only practicable, but economical, and sub- 
serves the best interests of all concerned. The 
capitalist, by reason of his natural and acquired 
ability, gives sufficient directive force in a few 
hours daily to keep 100 or 1,000 hands em- 
ployed. He plans the work while others exe- 
cute it, and each one is equal to his task 
without undue hardship. 

" Capital is the representative of the product 
of labor already performed." This definition is 
given by John Stuart Mill in his ' ' Principles 
of Political Economy," and applies equally to 
our individual and to the aggregate wealth of 
nations. 

There is a distinction made between wealth, 
capital, and money. The last two are always 
part of the first, but wealth is not always capi- 
tal, nor can all our wealth be converted into 
money at one time, since we have only about 
one dollar in money to every thirty possessed 
by us in property; yet this proportion is found 
amply sufficient to facilitate our exchanges, 
and that is the only purpose which money 
serves. 

Wealth is defined as consisting of anything 
useful or agreeable, which nature does not 
afford gratuitously, and for which some other 
form of property would be given in exchange. 

Capital is that portion of wealth devoted to 



286 WHOM TO TRUST. 

productive uses, and employed in any form of 
industry for the purpose of making profit or 
interest, or otherwise adding to the principal. 

Money constitutes a considerable part of our 
capital, but only a small portion of our wealth, 
and of all property it is the most available, since 
it affords instantaneous command over objects 
of our desire. It represents the net result of a 
series of transactions which are considered 
completed only when we have succeeded in 
converting them into money. But money is 
not necessarily capital, although in this age a 
larger proportion than formerly has assumed 
that function; in fact, all our money or circu- 
lating medium may be considered to be produc- 
tively employed and be termed capital, that 
portion used for pocket or spending money 
excepted, of course. To illustrate when money 
is not capital, suppose a case where a man 
deposits $1,000 in a vault for safe-keeping. 
Being withdrawn from circulation and earning 
or producing nothing, it ceases to be capital; 
but it still remains wealth. It has been robbed, 
temporarily, of its legitimate function of pro- 
duction, but continues to possess the quality of 
being exchangeable with the utmost facility for 
tilings desired, and is therefore in the best 
form to be used with the least inconvenience. 
This same $1,000, the moment it is released 
from its hiding-place and used in manufacturing 
or any business whatsoever^ whereby produc- 



CREDIT — CAPITAL AND LABOR. 287 

tion is effected or assisted, immediately assumes 
the function of capital again; nor need it be 
directly employed by the owner himself. 
Lending it to another on interest results in its 
productive employment, since no one could 
afford or be willing to borrow and pay for the 
use of money, unless he expected to use it and 
make money by the operation himself. Having 
thus briefly explained, intelligibly, I hope, the 
difference between wealth, capital, and money, 
we will take up the subject of capital, with 
which we are more especially concerned. 

Capital is the result of accumulation, and an 
accumulation once made becomes a permanent 
fund for productive operations, present and 
future. We may take as an illustration, the 
case of a small farmer under different and dis- 
tinct phases. One is given a piece of land 
which he works, and raises all that he needs 
for bare subsistence, but no more. He has 
nothing to sell or to exchange, and one year 
flnds him no better off than its predecessor. 
The labor performed is in exact proportion to 
the bodily requirements of the man. No 
accumulation is here effected, and capital is 
not produced. This is practically the case of 
the savage. On the other hand, the farmer 
who labors more hours, and who has a surplus 
of product beyond his own wants to exchange 
for stock, machinery, or for clearing or obtain- 
ing additional land, is a producer of capital. 



288 WHOM TO TRUST. 

Having, by his labor and industry, reaped a 
harvest which not only yields the means of 
subsistence for himself for a year, but enables 
him also to provide for another man's subsis- 
tence, he has made himself a capitalist to that 
extent. We will surppose, now, that the farmer 
discovers on his land a coal or iron mine. The 
surplus product of his previous year's labor 
makes it possible for him to employ another 
man to develop this natural resource, while he 
devotes himself to acquiring another year's sus- 
tenance to enable him to prosecute his work of 
development beyond the present year. 

We here have the capitalist, and we see that 
he has made himself such, simply by the per- 
formance of labor in excess of his personal 
needs. He has accumulated a fund, consisting 
of food in this case, which represents to him 
and others an exchange value either for acquir- 
ing other objects or other men's labor. The in- 
ference would be that the producer of food is 
the originator and principal source of all capi- 
tal and wealth, and that labor in other depart- 
ments, not directly productive of food, owes 
the possibility of its existence to the tiller of 
the soil, and this is logically true. 

In the animal and insect world we find 
" capitalists " at certain seasons of the year, 
and in some instances at all times. The squir- 
rel collects what he deems a sufficient supply of 
acorns to carry him through the winter; the 



CEEDIT — CAPITAL AND LABOE. 289 

bee and the ant show prodigious energy in pro- 
viding for future wants. We call this instinct; 
but it were well for a portion of mankind were 
they to exchange man 1 s higher estate of reason 
for simple instinct. 

Most of us can earn enough in four hours per 
day to sustain life and procure the absolute 
necessaries. Some are content with this; others 
are willing to labor a little more for what 
special indulgences it may provide; but those, 
only, who labor with a desire and for the pur- 
pose of having a surplus left out of their earn- 
ings, become capitalists. We often hear it said 
that our millionaires have not performed labor 
or rendered an equivalent in labor for their 
possessions; in fact, that no labor at all has 
been performed for it. If this were true, and 
capital or wealth was the creation of a mental 
process, simply and purely, the more of such 
creative geniuses this country could boast of, 
the better it would be, most assuredly. But the 
fact is, that not one dollar of capital exists that 
does not represent an equivalent in work per- 
formed by someone, whether it be in the hands 
of the laborer, the farmer, the merchant, or the 
millionaire. The men who live by their ' ' wits ' ' 
or who make speculation their business, live on 
the produce and the labor of their fellow-men. 
While it does not appear to be right that one 
man should be allowed to live on the fruits of 
another' s efforts, it is yet a fact of human life, 

19 



290 WHOM TO TEUST. 

as much as that the sun shines on the just and 
unjust alike. Notwithstanding the waitings of 
a certain discontented class, the laws governing 
commerce and society, and man's intercourse 
with man, are nevertheless fixed and immutable, 
so far as the individual is concerned, adjusting 
themselves, however, to the varying conditions 
and improvement of the race, and in this respect 
only, differing from the laws of Nature. 

Reverting to the subject of speculators and 
men living by their " wits," as we say, they are 
not producers, and in no sense can they be said 
to be a helpful addition to our industrial forces. 
They live on what others have already pro- 
duced, and aim to appropriate as much of this 
product of others as their ingenuity or superior 
sagacity enables them to. They can live and 
thrive only where the earnings and savings of 
others are in process of accumulation. Stanley 
has not reported finding them in his African 
tour, and not until others have gone there and 
reared the industrial structure, will the specu- 
lator be induced to bring his special talent 
to that market. Capital must first have exist- 
ence, before men can live on each other or be of 
any use to each other, and only as man advances 
in the social scale so that he will work and 
save, will he become a potent factor in his 
own welfare and contribute to that of the com- 
munity. 

To quote from the Political Economy of Mr. 



CREDIT — CAPITAL AND LABOR. 291 

Mill: "All capital originally is the result of 
saving, and a saving once made, becomes a 
permanent fund to be used in endless produc- 
tive operations, each operation being self -sus- 
tained and paying a profit besides." To enjoy 
the comforts and luxuries of life; to be inde- 
pendent — in short, to be in the possession of 
wealth— is the goal of our ambition; but how- 
ever ardently we may desire these things, the 
goal is not reached by simply wishing. We 
must work and save. 

" Credit is not equivalent to the creation of 
capital, but it helps to make capital more pro- 
ductive by being transferred to hands more 
competent to employ it efficiently. ' ' Credit is 
not an independent factor, although it appears 
that in the minds of many, credit is the equal 
of capital and capable of performing all its 
functions independently. But not one dollar 
of credit can be given unless a saving and 
accumulation to that extent have been effected 
and have tangible existence in what is termed 
capital. 

The function of credit is not production, but 
to aid production and distribution. This it 
does, and to this is owing the greater remuner- 
ation enjoyed by capital where the conditions 
in a community warrant a liberal dispensation 
of credit. Not all men nor even all owners of 
capital are qualified by education or inclination 
to engage in productive operations, but they 



292 WHOM TO TRUST. 

seek to employ tlieir capital, nevertheless, and 
by becoming partners or lenders and joining 
forces with men of experience and energy, they 
are enabled thus to reap part of the profits 
arising from such combinations. But it must be 
borne in mind that the same dollar can be used 
in but one operation at a time. For one man to 
give another part of his capital is an uncondi- 
tional surrender; to lend is a conditional sur- 
render or transfer; but in each case the original 
owner has diminished his power of production 
in the exact ratio that the borrower' s has been 
increased. From a superficial view it might 
appear that although A has parted with his 
capital to B, he can use the securities received 
from B and not be hindered in engaging in 
business himself. But this only changes the 
personality of lender and borrower, for B would 
then be using CT s capital instead ol A' s. ISTow, 
in our actual business transactions the person- 
ality of lender and borrower, creditor and 
debtor, is constantly changing ; but a first 
principle governs each and all — at some iDoint 
every credit transaction must be represented 
by capital and be based upon it. 

We can readily see that industry is limited by 
capital, and this limitation holds equally true of 
credit, although it might seem that our credit- 
giving capacity was greater than our capital. 
For instance, when A buys §10 worth of sugar 
and sells it at $11 on credit, his credit-giving 



CEEDIT — CAPITAL AND LABOR 293 

capacity would seem to exceed the capital in- 
vested. But right here we must notlose sight 
of a very important factor in the creation of 
capital, namely, labor. The dollar added to 
the original investment represents A's labor as 
distributor or agent. 

There is and has been at all times and among 
all classes of men, not excepting legislators and 
even prominent business-men, an erroneous con- 
ception of the nature of credit, it being looked 
upon as a creation possessing inherent powers 
and attributes, and capable of performing func- 
tions which it can only acquire by a transfer of 
the thing it represents, viz., capital. The 
inflationists, previous to 1879, comprised a very 
respectable faction, both in numbers and gen- 
eral intelligence. They insisted that the nation' s 
promise to pay was all-sufficient without refer- 
ence to its ability, based on property (national 
wealth) to secure or ultimately redeem. In 
holding to this theory they manifestly ignored 
the fundamental law governing the simplest 
business transactions. A nation's claim to 
credit, like that of an individual's, must 
always be based on property; otherwise this 
claim will not be recognized, whatever may be 
decreed by legislative enactments. O ur gold and 
' silver certificates pass current because we have 
confidence in the assurance that the govern- 
ment has gold and silver coin or bullion in its 
treasury vaults. While the notes are in circula- 



294 WHOM TO TRUST. 

tion we know that the property they represent 
is held intact for the security of the holder, 
and this furnishes the basis of our confidence 
in and ready acceptance of them. 



MEECANTILE AGENCIES. 295 



MERCANTILE AGENCIES. 

Since the mercantile agency is the direct out- 
growth and is so inseparably connected with and 
dependent for its support on our credit system, 
and since, also, it has come to be recognized as 
an indispensable adjunct to present conditions 
and methods of doing business, it may not be 
amiss to give a brief outline of its origin, growth, 
and present status. 

The Mercantile Agency System was first con- 
ceived and put into operation in New York 
City about the year 1837. The great commer- 
cial crisis of that year led certain parties con- 
versant with mercantile affairs and the credit 
system, as it then existed, to attempt the intro- 
duction of a method whereby the mercantile 
interests might find better protection and be 
surrounded with greater safeguards. With 
this end in view, and backed by leading houses 
for whose special benefit the scheme was more 
directly devised, a bureau for collecting infor- 
mation was opened by a Mr. Church. This was 
the beginning of our present Mercantile Agency 
System, and up to that time nothing had been 
attempted in this direction. 

The larger houses in those days employed 
commercial travelers, who managed to get 
around to their customers once or twice a 
year; but the object of these annual or semi- 



296 WHOM TO TRUST. 

annual visits was more to cultivate acquaint- 
ance and strengthen the relationship between 
buyer and seller. An estimate of customers, 
both as to character and responsibility, was 
thus formed, and their limit of credit, which 
we take to have been almost unlimited, was 
established. Though good, so far as it went, this 
plan was not alone expensive, but thoroughly 
inadequate to the needs of the times. Commerce 
was growing and extending in every direction, 
and new applicants for credit were constantly 
pouring in from every quarter, and of these 
nothing was or could be known, of course. To 
trust, or not to trust, however, must be decided 
at once. There was no agency to consult or 
telegraph to make use of while the customer 
was being entertained and shown through the 
stock. Under such circumstances these were 
both momentous and difficult questions to 
decide; but as every condition creates and 
develops its own defense and safeguard, so 
the merchants of those days were equal to 
the emergency by means of another school of 
training, differing entirely from our present 
methods. 

Most of us can remember when it was the 
custom of merchants, from all parts of the 
country, to repair to the metropolis once a year, 
at least, for the two-fold purpose of settling up 
and buying new stocks. This custom brought 
the New York merchant in personal contact 



MERCANTILE AGENCIES. 297 

with liis customers, both old and new, and 
developed in him a faculty for determining 
character and judging men and human nature, 
that has been largely lost to modern business 
science, and which constituted the essence of a 
thorough business-training fifty years ago. 

Looking back to this and still remoter 
periods in our commercial history, the law of 
compensation is brought to our minds with full 
force. We enjoy great advantages to-day, and 
would not willingly give up the least of our 
conveniences; but we have surely made a sacri- 
fice for them, to which the old-time merchant 
could never become reconciled. A customer in 
those days stood in the light of a friend — even 
a warm personal friend. Buyer and seller, 
after their relationship was once established, 
did not meet simply for what they could make 
out of each other. The Southern or Western 
trader combined pleasure with business when 
making his annual visit to the metropolis, and 
meeting his business friends periodically was 
his vacation and recreation. The merchant in 
turn received him with the most cordial hand- 
shake and generous hospitality, for which New 
York merchants were renowned. A customer 
then, once secured, could be relied on for 
continued patronage. There was real, gen- 
uine friendship, and this was the foundation 
on which the integrity and honor of buyer 
and seller mutually rested. Nor was this 



298 WHOM TO TRUST. 

mutual confidence often willfully abused. 
Laws for the collection of debts were on the 
statute books, and in some States were quite 
severe, but as regards any benefit to the creditor, 
they were practically a dead letter. We 
find in the literature of that period, as late as 
1847, a suggestion, emanating from some of the 
larger houses in New York, that the laws for 
the collection of debts be abolished altogether, 
and that dependence be placed entirely on the 
honor and honesty of the buyers. To collect 
by process of law from a trader in the Territo- 
rial governments of the then wild West, was, of 
course, impracticable from a business stand- 
point, if not impossible. The Dry Goods Rec- 
ord of that time also favored the repeal of the 
collection laws, and its arguments were, that in 
the absence of any legal redress for the cred- 
itor, a higher moral responsibility would be 
developed in the buyer by trusting entirely to 
his moral sense, and having it so understood. 
Although the laws remained in force, the argu- 
ment was not altogether illogical for those 
days, though now it would be impracticable. 
Yet we do find, even to-day, in the liquor busi- 
ness, for instance, credit given on a large scale 
to dealers residing in States where the collec- 
tion of liquor bills can not be enforced by law. 
Such is the confidence of man in man, that 
credit will flourish even without any protec- 
tion from the law. 



MERCANTILE AGENCIES. 299 

Taking up again the origin of the agencies, 
we find the purpose of its promoters to have 
been to collect and obtain information of the 
financial standing and responsibility of traders 
doing business with New York merchants, and 
it was mainly in the interest of a few of the 
larger houses that the agency undertook the 
work. The idea having much in it to recom- 
mend it, the list of patrons soon increased, and 
with it, the scope and value of the institution 
were increased also. 

The first reference-book was issued about the 
year 1840. While the list of names furnished 
was not large, the information was reliable. It 
was not so much an effort for quantity of 
material as of quality, and in this respect the 
value of the agency was not enhanced by time 
and experience. Competition presently entered 
the field, and this may be held responsible for 
the subsequent degeneracy and drifting away 
from the original plan and high resolve of its 
promoters. The success of the first agency 
soon attracted others to the field, some short- 
lived and others to stay, and ere long there was 
keen competition for patronage, and efforts, 
not to out-do, but to out-show each other were 
the result. Instead of giving the public honest 
and conscientious work, it resulted in lists with- 
out regard to reliability of statements. As long 
as only one was in the field, the most reliable 
service was sought to be given, and competition 



300 WHOM TO TKTTST. 

can not be said to have worked beneficially in 
this instance. 

The promoters originally songht to snpply 
only authoritative information, when informa- 
tion was given at all, and this policy should 
have been rigidly adhered to, for it is not 
quantity that business-men want, if it is at the 
expense of reliability. No report at all is bet- 
ter than an incorrect one, and if the agencies 
would follow this suggestion more uniformly, 
they would give vastly better service to the busi- 
ness community. Like a general storekeeper, 
who tries to keep everything because the nature 
of his business implies supplying every want of 
his customers, so the agencies undertake to 
answer all inquiries to satisfy subscribers, thus 
appearing to give them service for their money. 

Yet, considering how much they undertake 
and how much is asked of them, it is surprising, 
that they render as acceptable service as they 
do, especially when we consider the difficulties 
under which they labor. First, it is incompe- 
tency and want of business knowledge and tact 
of the correspondents. Second, carelessness 
and indifference of correspondents to their 
work, in which they have no especial interest, 
and which they perform, in a large measure, 
gratuitously. Thirdly, personal favoritism or 
prejudice is apt to sway the correspondent's 
mind, consciously, sometimes, and unconsciously 
at others, and so a long list of difficulties might 



MERCANTILE AGENCIES. 301 

be enumerated which operate against the 
agency. Local reporters for agencies rarely 
get paid for their services, except in an indirect 
way. Even when under direct pay, it is not 
remunerative enough to command great talent 
or much time. 

But notwithstanding all the shortcomings of 
the system, and with all its glaring defects, it 
is, nevertheless, a permanent institution with 
the American business-public, and has come to 
stay. Notably among the agencies of to-day, 
R. G. Dun & Co. and Bradstreet may be cited, 
and as money-making institutions they have 
been very successful, and this necessarily proves 
their popularity and usefulness. But we cheer- 
fully give them credit, also, for constantly 
improving their service and of appropriating 
a fair share of their immense earnings toward 
the perfecting of their systems. Infallibility 
is not one of the things chargeable to them to 
any alarming extent, but that the reports of 
to-day are a great improvement over those of 
twenty years ago, or even ten, is cause for much 
encouragement. Within the last few years the 
agency has been accorded a place in the busi- 
ness community of this country at least, and 
by reason of this recognition, they have been 
. able to assume a more independent attitude. 
The more we recognize their right to existence, 
the greater will be their usefulness. 

A tolerably recent innovation of the agencies 



302 WHCni TO TEUST. 

is the right claimed by them to ask for ' c Signed 
Statements," and the requests are complied 
with much oftener than might be supposed. ' A 
statement made over the signature of a dealer 
is not necessarily correct, and while the esti- 
mates of figures need be taken with some allow- 
ance, they are, yet, much better than the purely 
guess-work (in many instances unavoidable) 
of the reporters. Where a signed statement 
of the assets and liabilities is given, the only 
task, and a comparatively easy one, is to have 
it corroborated. 

The idea of ' ' Signed Statements " is a good 
one, and the creditor class, for whose benefit 
they are obtained, have a right to expect them. 
A mercantile report of this kind, furthermore, 
has a legal status. The party giving it does so 
for the purpose of obtaining credit on the repre- 
sentations made by him, and in case of a false 
statement, the law attaches a criminal account- 
ability to such misrepresentations; that is, 
obtaining goods under false pretenses. ~No 
debtor can afford to make himself liable under 
this head. 

The history of the Mercantile Agency shows 
a determined opposition to it on the part of the 
public, and only in the last twenty years 
or so has popular prejudice been removed. 
A little of it lurks even now in remote locali- 
ties. The very nature of the institution and 
its inquisitorial functions naturally arouse 



MERCANTILE AGENCIES. 303 

antagonism, and, strange to say, for it is para- 
doxical, the free citizen of the United States is 
the only one on the face of the globe who tol- 
erates it. It is a purely American institution 
and nourishes only on American soil. Aside 
from "a few branch offices established in the 
principal European cities by Bradstreet and 
Dun & Co., they are not recognized, and these 
branches exist only for the information they 
can give of American houses. 

Europeans do not take kindly to anything of 
an inquisitorial nature. The Church and State 
have always monopolized and claimed the right 
to pry into their affairs, and they graciously 
submit, but they are averse to any additional 
encroachments on their privacy. 

In England, banks furnish their customers 
with information concerning the standing of 
parties in trade. A customer of a bank is 
privileged to make inquiry through it, and 
banks obtain from each other such information 
as may be wanted. In Europe, banking insti- 
tutions are excrutiatingly exacting, and in the 
matter of obtaining and giving information 
they would naturally be very cautious and 
painstaking, so that reports received from this 
source would be quite reliable. We do not 
apprehend, of course, that banks are eager to 
lend themselves to this kind of business, and 
only in special cases, and as special favors to 
very good customers, do they perform this office, 



304 WHOM TO TKUST. 

The growth and efficiency of the Mercantile 
Agency in the United States, as compared with 
its statns in other countries, is due to natural 
causes and more favorable conditions. Credit 
here is dispensed with a liberal hand, and to 
people very distantly removed from the sellers, 
but this does not signify that credits are made 
hap-hazard and without some knowledge of 
the buyer's commercial standing. And here 
the agency comes in as a medium between 
buyer and seller. In round numbers there are 
over 1,000,000 business firms in the United 
States, and the agencies furnish information of 
them all, and, even if incorrect in many in- 
stances, they still give us an idea of their com- 
mercial standing, where otherwise we could not 
even make a guess. The assistance which they 
render in facilitating business intercourse is, 
therefore, of great and unquestionable benefit. 

We stated at the beginning that the mercan- 
tile agencies were the outgrowth of our credit 
system. It may also be added that our present 
widely extended credit system is largely due to 
the labors of the agencies, and it is no longer a 
disputed question that they supply a want, 
and are indispensable to the business public. 



